June 09, 2005 01:04 PM

 “The key objective is rebalancing our overall tax system,” said Taxation Committee Co-Chairman Dick Woodbury, an independent from Yarmouth. He also admitted “it might be useful in elimination of the revenue bonds.”

The bill would lower income taxes by $122 million and spend $51 million on property tax reform, including fully funding the Homestead Exemption passed this year by the Legislature, but only funded at 50 percent. It also would generate a $146 million surplus. To pay for it all, the sales tax would go up $320 million.

Some thought tax reform was dead for this session because the Legislature is now absorbed in getting rid of $450 million in revenue bonds in the state budget. About $200 million is easily eliminated by not making early payments to the state employees retirement system. The other $250 million, however, is going to require a combination of tax increases and spending cuts.

The tax plan voted out of committee along partisan lines on Wednesday was not sanctioned by Democratic leadership, which appears to be leaning toward sin taxes to make up half of the $250 million, but it would do the trick. Republicans said they might be interested in the plan if it also imposed constitutional spending caps.

It would redistribute the taxes Mainers pay, putting more reliance on the sales tax and less on income taxes, essentially exempting a family of four with income of $30,800 from paying any income tax at all.

At the same time, the bill expands the sales tax base to include more services and some goods. It brings back the snack tax, for example, and taxes services, from haircuts to funerals.

Also included in the proposal is an increase in the meals and lodging tax, from 7 to 8 percent, that would raise $36 million. Soda would be taxed for the first time and the taxes on beer and wine would be increased, for a total of $38 million.

Some specifics of the sales tax plan include taxing:

• Personal services, from fitness centers to pet grooming, for more than $7 million over two years.
• Personal property services, from car repair to furniture upholstery, for $38 million.
• Home services, from painting to pest control, for nearly $6 million.
• Contracted services, from security to property management, for $33 million.
• Amusements and recreation, from admission to sporting event to boat moorings, for $27 million.
• Currently exempt items, from sales to some health-care providers to snacks, for $91 million.

At the same time, income taxes would be reduced by:

• Increasing the low income tax credit from $2,000 to $4,000 for singles and to $8,000 for joint filers, cutting income taxes by more than $10 million.
• Having Maine conform to the federal standard deduction and thereby eliminating the marriage penalty, cutting taxes $20 million.
• Having Maine conform with the federal government on the personal exemption, cutting taxes by $35 million.
• Decreasing the top income tax rate from the current 8.5 percent to 8.25 and then 7.9 percent over two years, cutting taxes by $45 million.
• Conforming to the federal code on Health Savings Accounts and business expensing, cutting taxes by $10 million.

“This would offer tax relief to every single income tax payer,” Woodbury said. 

It also would put $146 million in the budget stabilization or rainy-day account, which no doubt would be taken to balance the budget if the borrowing is eliminated.

The bill was passed out of committee 7-6, with Woodbury and all the Democrats in favor and all the Republicans against.

Rep. Harold Clough (R-Scarborough), the ranking House Republican on the committee, said he was voting against it because there were tax increases without spending controls.

Sen. Jonathan Courtney (R-York) agreed, saying, “If there were real spending reforms, we might have some interest.”

He also asked if there was support from the governor’s office or leadership in both chambers.

“The funny thing about support is sometimes it’s there and the next day it’s gone,” answered Sen. Joseph Perry (D-Penobscot), the committee co-chairman.

Rep. Thom Watson (D-Bath) said, “I’m enthusiastic about it. It spreads the pain as much as possible,” with everybody “suffering a little” under the sales tax expansion, but “everybody gains” with the income tax breaks.

Watson said the $146 million in surplus revenue generated could be “raided and may well be when we’re trying to get this budget out,” without floating revenue bonds.

Rep. Deborah Hutton (D-Bowdoinham) said she had talked to people circulating petitions to stop the borrowing in the budget. “I asked them to tell me ‘what would you cut?’”

She said one person suggested teachers’ pay, another said superintendent salaries. A third said, “nothing. I would raise taxes,” and she told him, “I can do that.”

“There’s more support than we necessarily see in this room for raising taxes,” Hutton said.

Rep. H. Stedman Seavey (R-Kennebunkport) said, “You cannot call a $100 million tax increase tax reform.” If, however, “there was a constitutional amendment to cap spending, I’d support this measure as it is.”