Politics

April 30, 2013

Maine coalition to propose dramatic tax reform

Consumption taxes would rise and Maine income taxes would drop, says a draft of the bipartisan plan.

By Steve Mistler smistler@pressherald.com
State House Bureau

AUGUSTA – A bipartisan coalition of state lawmakers is preparing to reveal a dramatic tax overhaul proposal that aims to slash the state's income tax rate in half and make a host of other sweeping changes, including raising sales and excise taxes and eliminating exemptions.

click image to enlarge

State Sen. Dick Woodbury, I-Yarmouth

Unlike previous attempts at significant tax reform, the forthcoming bill may prove difficult to defeat, either by the Legislature or by the interest groups it is certain to rankle.

The coalition, known as the "Gang of 11" at the State House, has been working behind the scenes for several months to craft the bill. The proposal will have its official debut Wednesday, but a draft outline obtained by the Portland Press Herald highlights a series of changes that would yield an estimated $700 million in revenue and have far-reaching implications for Maine taxpayers and businesses.

"This overhaul package does not nibble around the edges of reform," the document reads. "It restructures dramatically the way we finance government."

Sen. Dick Woodbury, a Yarmouth independent, is the policy architect for the proposal. He said Monday that the bill is designed to capture a more equal proportion of sales and use taxes from nonresidents in order to pay for tax relief for Mainers and stabilize the state's finances.

Additionally, he said, slashing the income tax rate may entice those with seasonal homes to declare Maine as their primary residence, thus allowing the state to capture additional income tax revenues.

"I think there are a lot of pro-growth principles in this that I hope are transformative to Maine's economy," Woodbury said. "They're designed to be transformative. This isn't just tax reform for residents; it's also supposed to be a real driver of our economy."

Woodbury, who has a Ph.D. in economics from Harvard University, has proposed sweeping tax changes before. But this time his bill has bipartisan backing that includes members of Republican and Democratic leadership and lawmakers whose political leanings range from the far right to the far left.

The "Gang of 11" includes Senate Majority Leader Seth Goodall, D-Richmond, and Sen. Roger Katz, R-Augusta, the assistant Republican Senate leader. Goodall and Katz are considered moderates in their party, but other members of the coalition include members from the influential budget-writing committee: Sen. Emily Cain, D-Orono, and Sen. Dennis Keschl, R-Belgrade, as well as the more conservative Rep. Amy Volk, R-Scarborough, and progressive Rep. Nate Libby, D-Lewiston.

"It's a group that's been meeting now for some time," said Katz. "It's truly bipartisan and we're excited about it."

The broad political cross-section of the coalition, and the release of the bill less than 60 days before the scheduled end of the legislative session, may protect the proposal from anticipated opposition from influential groups that include the tobacco, restaurant and lodging industries.

The opposition will likely center on initiatives outlined in the draft document, which Woodbury confirmed Monday originated with the coalition. Woodbury said some of the details had changed since the document was written March 26, but overall the finished concept -- paying for income tax cuts with increases in consumption taxes -- remained.

The draft includes a proposal to cut Maine's income tax rate from its top rate of 8 percent and replace its tiered system with a 4 percent flat tax. If the reform is enacted, Maine would become the eighth state with a single income tax rate, according to data compiled by the Tax Foundation. The 4 percent rate would be the third-lowest among the flat-tax states. Nine states don't have any income taxes.

The draft proposal also calls for lowering the corporate income-tax rate from 8.93 percent to 7.5 percent and eliminating the state's estate tax. Woodbury said all of the tax cuts are designed to provide tax relief for Mainers, lure part-time residents to pick the state as their primary domicile, and attract businesses.

(Continued on page 2)

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