AUGUSTA — Republican leaders in the Maine Legislature on Friday made official their proposal for the state’s next two-year budget that includes an income-tax cut they say will save Mainers $380 million.
Parts of the proposal, first leaked Thursday, shows a plan that diverges significantly from what Republican Gov. Paul LePage had asked for in his two-year budget proposal, with one critic saying it will do little to stabilize the state’s revenue sources in the future.
LePage’s spending plan seeks major tax-policy reforms, including a reduction in the state’s top income-tax rate from 7.95 percent to 5.75 percent, an increase from 5.5 percent to 6.5 percent on the state’s general sales tax and an expansion of taxable goods and services.
The Republican plan, as rolled out Friday, seeks to reduce the top income tax in 2016 to 6.75 percent and lower it to 6.5 percent in 2017.
The Republican plan keeps the state sales tax at 5.5 percent and does not broaden it to include additional goods or services. Under current law, the sales tax will drop to 5 percent July 1.
LePage’s budget would eliminate $62 million in state revenue-sharing with municipalities in 2017, but the Republican plan keeps revenue-sharing in place and increases it by about $2 million, to $64 million, in 2017.
State House Republicans eschew LePage’s proposal to allow a property tax on nonprofits that have properties valued at more than $500,000 and his plan to eliminate itemized deductions for personal income-tax filers in Maine.
Republicans also differ with LePage on his proposal to double a property tax credit for those over 65. They would instead keep in place a state tax credit allowed for most Maine homeowners.
“I think that most Republicans in the Legislature recognize that property taxes are important to people as well,” said Senate President Mike Thibodeau, R-Winterport. “We see revenue-sharing as a way to keep those numbers in check. People back home are already struggling with exploding property taxes, so we didn’t want to turn our back on that responsibility, and felt like we needed to continue to support our local communities.”
Thibodeau said Republicans were unified in not moving much from their proposal during negotiations with Democratic colleagues.
“We are always open to better ideas, but I’m not sure we are interested in the plan that they refer to as ‘the better plan,'” Thibodeau said. “We think this is the best plan.”
He and House Minority Leader Ken Fredette, R-Newport, said their inclusion of itemized deductions on state income tax forms is an important part of their proposal.
Fredette and Thibodeau said those who itemize mortgage interest or donations to charity, along with those who itemize medical expenses, in some cases will end up with a lower “effective tax rate” than under LePage’s proposal, which eliminates itemized deductions.
They said the deductions help encourage investment in homes and help Maine charities.
Democratic leaders in the Legislature were quick to seize on their Republican colleagues’ apparent willingness to stray from LePage’s budget plan.
“Clearly, the Republicans came out today and rejected the governor’s proposal and brought forward their own,” House Speaker Mark Eves, D-North Berwick, told reporters shortly after Republicans presented their plan.
Democrats had questions about the Republican plan, including how the GOP intended to pay for the income-tax cuts it is proposing.
Eves noted that Democrats were more aligned with LePage on increasing and expanding the sales tax as a way to offset an income-tax cut. But Eves said now that Republicans appeared to be rejecting that idea, it was unlikely to move forward in the Legislature.
The Republican plan does align with LePage in that it seeks to eliminate the income tax on military pensions. The Republicans’ plan also phases out the estate tax over the two-year budget cycle.
Many, including LePage, see an increased and expanded sales tax as a way to export the cost of state government to the millions of tourists who visit Maine each year. But plans differ in the details.
Republicans increase the sales tax on meals and lodging from 8 to 9 percent. LePage’s plan would reduce the sales tax on meals to 6.5 percent while keeping the lodging tax at 8 percent, which aligns with the Democratic proposal.
Eves said the Republicans’ proposal around meals and lodging does not bring in enough revenue to balance out the losses to income tax the state would see as a result of their proposal.
Adrienne Bennett, a spokeswoman for LePage, said Friday that the governor had been briefed on the latest incarnation of the Republican proposal but his focus remains set on eventually eliminating the state’s income tax.
“The governor has been meeting with the people of Maine, he’s been doing this for the last couple of months and what he’s hearing from the people is that they are in support of the elimination of the income tax,” Bennett said.
Bennett said LePage also firmly believes voters statewide should be given the chance to weigh in on a proposed state constitutional amendment eliminating the income tax.
But earlier this week a LePage bill that would have put the question before voters in 2015 was rejected on a 5-7 vote of the Legislature’s Taxation Committee. To move forward, the bill would have to receive two-thirds support of both the House and Senate and would have to be ratified by voters in a statewide election.
Bennett said LePage was not necessarily disappointed with his Republican colleagues defecting from many of his positions on the budget, but understood they were doing their job as they saw fit.
She reiterated LePage’s desire to see the public get engaged in the conversation. “It doesn’t matter if you agree or disagree with him,” Bennett said. “He just really wants people to get involved in the process. That’s how democracy works best.”
In the days ahead, lawmakers in both parties and the governor’s staff will continue to negotiate on their competing positions. A new state budget must be in place by June 30, if lawmakers hope to avoid a state government shutdown. The new fiscal year begins July 1.
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