AUGUSTA – Gov. John Baldacci said Monday he would propose lowering Maine’s personal income taxes in the January session of the Maine Legislature, but how much depends on the state budget now being developed.

“We are going to be doing more budget cutting, more budget restructuring, more efficiencies,” he said Monday in an interview. “We have only just begun that process with jails and school administrative districts. More needs to be done, and we are going to do more of that and reduce the income tax on earned income.”

Baldacci said the recent Tax Foundation study that ranked Maine as having the 15th-highest tax burden did note the personal income tax rate in Maine is among the highest in the nation and contributes to the overall tax burden.

“They were right not to include property taxes paid by out-of-staters, but they were also right to point out our high income tax rate,” he said. “I was concerned about that last year and I am concerned about that this year.”

Baldacci declined to say whether he has a target for reducing the income tax, or whether he will propose reducing the 8.5 percent maximum rate or seek to reduce the taxes Maine residents pay by other adjustments to the tax code. For example, increasing either the standard deduction or the personal exemption levels would reduce the amount of income tax a person pays, even if the person still pays taxes at the 8.5 percent rate.

Maine’s top rate starts at $18,950 of taxable income. However, couples using the standard deduction of $9,100 a year plus a personal exemption of $2,850 for each dependent in their family can shield a significant portion of their income from taxation.

“I want to reward people for working,” he said. “I can’t tell you now how we are going to do it, but I want people to pay less than they are paying now.”

Maine is tied with the District of Columbia for the seventh-highest top personal income tax rate. The highest rate is California’s, with a top rate of 10.3 percent for taxable incomes of more than $1 million a year.

Overhaul of Maine’s tax structure has dominated the state Legislature’s Committee on Taxation over the past two years, but none of the proposals got enough votes to be passed. Sen. Joe Perry, D-Bangor, co-chairman of the committee, said the “rebalancing” plan the panel proposed would have significantly reduced the income tax rate and paid for it by increasing the number of items and services subject to the sales tax.

“He [Baldacci] had proposed once before lowering the income tax rate, but it was very incremental and would have taken a very long time to have an impact,” he said. “I think we need to go bold and do everything we can to lower that rate as much as we can right off the bat.”

Perry said it would be difficult for Baldacci to find the funding to reduce the income tax significantly if he depends only on budget cuts and any growth in revenues that may occur.

“I think we will need a major rebalancing of our taxes to accomplish a significant reduction,” he said. “We had that last year, but we couldn’t get the votes. Maybe we can next session. I will be supporting it, if I am re-elected.”

Sen. Richard Nass, R-Acton, the GOP leader on the tax committee, praised Baldacci for proposing any decrease in the personal income tax, even if it is incremental, while at the same time agreeing with Perry that a significant decrease is needed.

“One of the most important things we can do to improve our economy is to reduce that rate,” he said. “We know leaving more money in people’s pockets is better for our economy.”

Nass said the next state budget would be difficult with energy costs and the built-in increases in state spending for existing programs. He said, however, even a small decrease in the personal income tax will be important.

“I will be one that will be in his corner cheering whatever he can do to reduce spending and take the rate down,” he said. “There are huge economic benefits to the state for doing that.”

The governor said he planned to work out the details of his proposal over the fall and present them to the new Legislature in January 2009.