AUGUSTA — Gov. Paul LePage on Friday made good on his promise to “go after” Maine income taxes in his next two-year budget.
LePage’s 2016-17 spending plan for state government includes sweeping reforms to Maine’s tax policy, dramatically changing the sources of state revenue from the income tax to a broader and higher sales tax.
The $6.3 billion budget, which must be approved by the Legislature, also would eliminate state revenue-sharing with cities and towns by 2017.
A change in law needed to make up for that lost revenue is included in the governor’s budget proposal. The change would allow cities and towns to tax the property of nonprofit organizations with property valued at over $500,000 at 50 percent of the current property tax rate for the municipality.
That change would affect hospitals and private colleges, including Bates College. One of LePage’s key goals during his first term was to pay off the state’s Medicaid debt to hospitals, using about $280 million in state funds.
When asked if a new property tax for hospitals would be yet another financial burden on them, LePage offered only a short answer.
“It’s probably going to lower the wages of some high-paid CEOs,” LePage said.
LePage’s plan, which chops the state’s top income tax rate from 7.9 percent to 5.75 percent, reduces the total amount Mainers will pay in taxes by about $300 million a year by 2019.
“We are moving the state away from an income-based economy to a consumption-based economy,” LePage said before a group of reporters, government officials and lawmakers late Friday afternoon.
The governor’s proposed budget also would eliminate entirely the state income tax for those receiving military pensions. LePage said the move is an effort to attract retiring military people to Maine.
LePage’s budget would make up the lost income-tax revenue in his proposal by increasing the state’s sales tax from 5.5 percent to 6.5 percent. The state’s lodging and auto rental sales tax would be fixed at 8 percent. A service provider sales tax of 6 percent would also be put into place.
That increased sales tax would be applied to a broader range of goods and services, many now exempt from the sales tax, including attorneys’ fees and greens fees at golf courses.
“And I like to golf,” LePage said. “Everybody’s got to pay their fair share.”
The state’s current sales tax is set to be reduced to 5 percent on June 30 and the tax on meals and lodging, now at 8 percent, is set to decline to 7 percent. LePage’s proposal would extend the current rates until the new sales-tax rates kicked in on Jan. 1, 2016.
The proposal also would eliminate the state’s estate tax paid by those who inherit properties or businesses and includes provisions that would allow a sales-tax rebate based on income.
The big goal, LePage said, is to make Maine more competitive when it comes to attracting businesses with good-paying jobs.
The proposal would also reduce the state’s corporate income tax rate from 8.93 percent to 6.75 percent.
“We want to become a very competitive economy; we want to become a prosperous economy,” LePage said. “I want to have the term ‘poverty’ become a thing of the past. For some reason, we have a way in Maine of looking at poverty as a way of life. I would like poverty to be a thing of the past. I would like prosperity to be the future. I want prosperity to be what we talk about.”
The proposal also includes $46 million in additional funding to eliminate waiting lists for the Maine Department of Health and Human Services for some of the state’s most disabled residents — including those with mental and physical impairments that require 24-hour care and support services.
“This budget takes care of that,” LePage said. “We are giving more money to nursing homes, we are eliminating the wait list and we are doing what we should have been doing for decades.”
The state’s budget, the biggest job for lawmakers this legislative session, is always a work in progress — and while the governor must propose the budget, the Legislature will have the final say on how government is funded.
Key lawmakers from both parties Friday seemed to be just digging into the massive budget document that will easily exceed 1,500 pages when it is finalized.
They offered optimistic — if cautious — responses to their initial glimpses.
“In all honesty, I think we all know this is the beginning and we are in for a ride,” state Sen. Garrett Mason, R-Lisbon, said.
Mason, the Senate majority leader, said LePage was “totally focused on making sure DHHS works for the right people. For the elderly, the disabled and for kids.”
He said LePage was also keeping his word to reduce the state’s income tax.
“He is doing exactly what he said, but I think those proposals need a little bit more outlining,” Mason said.
Senate President Mike Thibodeau, R-Winterport, said LePage was offering “a bold initiative.”
Thibodeau offered no clear defense of why a Republican governor who had been steadfast against increasing the sales tax — even vetoing a supplemental budget bill because of a 0.5 percent sales tax hike in 2014 — was now launching a proposal to increase and expand the reach of the sales tax.
“You’ve got to look at the entire package, and I’m sure we are going to have time to do that,” Thibodeau said.
He said he didn’t think the caucus was so much concerned with the tax hikes as they were with trying to fully understand the proposal.
“We’ve been briefed, just like you have, from a 40,000-foot level,” Thibodeau said. “We’ve got to dig into it and make sure we understand what’s being proposed and we’ve got to look at the global thing. But hooray for the governor for tackling the big income-tax rate that exists in the state of Maine.”
House Speaker Mark Eves, D-North Berwick, said there were clearly things in the proposal Democrats were going to balk at.
Those include a proposal to eliminate Maine’s mortgage-interest tax deduction and what appeared to be a $48 million reduction in programs that help provide low-cost prescription drugs to the elderly.
“But again, we need to look at this in the big context,” Eves said. “What is the net effect? How does this grow jobs in our state? If it does, then we certainly will be supportive of it.”
Eves also noted that many of LePage’s proposals look very similar to ones Democrats have made in the past.
“It’s just fascinating to me that these are parts of the governor’s budget proposal,” Eves said.
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