LEWISTON — The chief architect of a state tax reform plan that was rejected by the Legislature in 2013 said Friday that he sees hope on the horizon for a Gov. Paul LePage budget proposal that includes similar reforms.
Former state Sen. Dick Woodbury, a Yarmouth independent, said LePage’s 2016-17 state budget proposal, currently being dissected by lawmakers in Augusta, includes similar provisions he and 10 other lawmakers, both Republicans and Democrats, put forward two years ago.
Woodbury is a Harvard-trained economist, who also served in the Legislature for 10 years, frequently focusing on tax policy.
During an hourlong presentation before about 60 people at a Great Falls Forum at the Lewiston Public Library, Woodbury also said LePage’s plan to broaden and increase Maine’s sales tax to reduce the state’s income tax includes a lot of financial relief for low-income families as well.
Woodbury said some may find LePage’s plan somewhat surprising in that it doesn’t look simply to cut government spending, as would be expected from a conservative Republican.
Woodbury said LePage is “somebody who, on the one hand, you sort of thought was close to this right (conservative) group that would say, ‘There isn’t any tax I ever want to raise and let’s just cut,’ … and he’s coming up with a plan that looks remarkably like what many of us have worked on for the last 10 years.”
That plan would increase Maine’s sales tax to 6.5 percent and also broaden it to cover a host of services which are currently untaxed. Everything from haircuts to lawyers’ fees would be subject to the new, expanded tax.
But the increased revenue is used to offset a dramatic reduction in the state’s top income tax rate from 7.95 percent to 5.75 percent.
The LePage plan also includes changes to a myriad of programs meant to provide property tax relief while reducing the tax paid by retirees on their pensions — eliminating it entirely for those on military pensions — and increasing by a wide margin the number of families who would be entirely exempt from state income taxes.
The state’s homestead exemption, which allows homeowners to exempt the first $10,000 of their home’s value from local property taxes, would also be changed to be available only to households with a family member who is over the age of 65. The amount of the exemption, however, would be doubled to $20,000.
LePage’s plan also increases by $65 million the amount available in the state’s property tax fairness program, which allows an income tax rebate for those paying a high percent of their income in property taxes or rent, Woodbury said.
The LePage budget also increases the maximum rebate from $600 to $1,000 for non-senior citizens.
Those 65 or older who are eligible for a rebate under the program would also see maximum rebate amounts increase from $900 to $1,500.
Woodbury said some critics of LePage’s plan have panned it for being a tax break largely for the wealthiest Mainers, because it lowers the income tax rate and abolishes Maine’s estate tax.
“But this reform is also removing a lot of people from the lower income levels from having to pay any income taxes,” Woodbury said.
He noted that under the LePage plan, a family of four that files taxes using the standard deduction could earn up to $48,000 and still pay no state income taxes.
Woodbury acknowledges that higher-income taxpayers also benefit substantially from the tax cuts but said the LePage budget really does provide tax relief “across the board.”
Overall, the LePage proposal would reduce the tax burden on all Mainers by an estimated $275 million a year by 2019. Woodbury said the main focus of the plan involves exporting a lot of the sales tax to the 15 to 20 million tourists who visit Maine each year. The shift to the sales tax would also shift more government costs to nonresident second homeowners and retirees who still live in the state for a substantial portion of the year.
LePage’s plan also would eliminate the state’s revenue-sharing program, which filters 5 percent of the state’s sales and income tax to municipalities, by 2017.
In recent years, the Legislature has reduced the amount going to cities and towns from about $95 million to approximately $65 million. The program was originally set up to filter about $150 million to towns and cities, Woodbury said.
But to make up for the loss, LePage has proposed allowing cities and towns to collect property taxes from nonprofit entities that have properties with values in excess of $500,000. It’s a controversial part of the reform that will likely meet resistance from many of those nonprofit entities, especially cities and towns lacking a significant number of nonprofit entities.
Woodbury said the previous tax reform proposal did not eliminate revenue sharing with cities and did not attempt to tax nonprofits.
He said the idea should be considered carefully because while some nonprofits may have large amounts of property value, they may not necessarily have large amounts of income.
“The imposition of property taxes on nonprofits is an idea that hasn’t incubated and developed and become administratively practical enough that it is likely to survive,” Woodbury said. “I don’t know, but we will see.”
Audience members said they were impressed with Woodbury’s analysis but also said they were not all fully sold on LePage’s plan, either.
Minot resident Bill Hiss, a retiree and former dean of admissions for Bates College in Lewiston, said he’s skeptical of the idea of taxing nonprofits because not every town has an abundance of them.
“Minot has no institution whatsoever that would fall into this category of a nonprofit with enough real estate to warrant a tax,” Hiss said.
Maine’s bigger cities, however, have plenty of nonprofits that would be eligible, Hiss noted.
“Lewiston has three enormous nonprofits in its two hospitals and Bates,” Hiss said.
He suggested that property taxes not paid by nonprofits should be reinvested in facilities, scholarship funds and other improvements which would help draw students and faculty.
Hiss also said that wealthy retirees are not as prone to flee Maine because of its taxes, as many conservatives would point out.
Others also said they were skeptical of increasing Maine’s sales tax because they already know people who largely avoid paying sales tax by doing much of their retail shopping in tax-free New Hampshire.
Mady Roy, a retired accountant and Lewiston resident, said her Canadian relatives already avoid shopping in Maine when they visit because of the sales tax.
In the months ahead, LePage’s budget and tax-reform package will be the focus of lawmakers in Augusta as they work to craft the state’s next two-year budget.
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