AUGUSTA – The Gang of Eleven defended its controversial tax overhaul on Friday during a packed public hearing of the Joint Standing Committee on Taxation.
“I dare say there’s not a person in this state who does not recognize that our current tax code is antiquated and inadequate,” said Rep. Gary Knight (R-Livermore), lead sponsor of L.D. 1496, An Act to Simplify and Modernize the Tax Code.
“We are severely hampered by an inordinately high income tax,” Rep. Knight said. “Everyone feels compelled to solicit professional help when filing their taxes,” he said.
“Some will say we can just cut expenditures and we’ll be fine,” said Knight, “But that’s for [the Appropriations Committee] to decide.”
“Is it perfect? Absolutely not.”
Sen. Richard Woodbury (U-Cumberland), who is heralded as the gang of eleven’s brains because he has a Phd. in economics from a university in Massachusetts, said the goal of the gang’s plan was to develop a pro-growth tax system.
“We thought it needed to be anchored by a major reduction in the income tax,” said Sen. Woodbury. “The sales tax is the hard part of course.”
“We raise quite a few sales and excise taxes,” he said. “We expand the sales tax base to include many services that are currently exempt.”
Woodbury said that high property tax bills were a frequent complaint among his constituents. “The average [property tax] reduction will be in the ball park of $500 statewide,” said Woodbury, adding that the Maine Municipal Association (MMA) would be producing more accurate estimates in the near future.
Woodbury said that, in order to make the tax progressive, the plan calls for sales tax credits to be provided in the form of a yearly refund check. “They’ll get a refund check in the mail,” said Woodbury. “As you go up the income scale, that refund phase out,” he said.
“The aim was to collect much more through the sales tax, return most of it toward relief in the income tax, but about $150 million in increased revenues going into property tax relief,” he said.
“It’s technically true that general fund revenues would be about $150 million higher,” said Woodbury.
Despite earlier reports that the tax plan is already shifting, Woodbury said that tweaking the sales tax changes, such as excluding home heating fuel, would have significant implications for the rest of the plan. (Recommended: Gang of Eleven tax plan changing on eve of public hearing…)
Asked what percentage of the new tax burden would be shouldered by out-of-staters, Woodbury said, “That’s something that for this current plan we don’t know.”
Whether and to what extent Maine can export its tax burden is only one aspect of the plan that remains unclear. There is also some doubt as to whether lawmakers can successfully ensure that businesses are not slapped with higher taxes for the goods and services they purchase.
“The intention is not to expand the sales tax base into business to business transactions. There may be slight spillover here and there,” said Woodbury. “There are definitions that still need to be fleshed out,” he said.
Another concern critics of the plan have is that higher sales taxes will exacerbate the widely-acknowledged problem of cross border shopping in New Hampshire.
Woodbury said that it was a concern that high sales taxes encourage cross border shopping, but said he would leave it the Maine Revenue Services (MRS) to weigh the losses of cross border shopping against the gains of lower income taxes. Even with a certain amount of additional cross border shopping, he said, he still favors the plan.
The Maine Republican Party came out forcefully against the plan, calling it a “Tax Shift & Shaft” that will feed liberal Democrats’ lust for government spending.
“This plan is nothing more than a stronger version of the Democrat shift-and-shaft plan of a few years ago,” said GOP Chairman Richard M. Cebra.
“Not only will Maine people, small businesses and Maine’s economy get hurt by this plan, but the next time Maine faces a budget shortfall, Democrats will just try to raise taxes again,” said Cebra. “All this plan does is give liberal Democrats more targets to tax and more ways to spend.”
Said Cebra, “Republicans across this state know that the solution to our budget problems isn’t a massive tax shift-and-shaft, it is pro-growth reform that helps our economy grow and helps Maine people get better jobs and bigger paychecks.”
Sen. Doug Thomas (R-Somerset), the top Senate Republican on the Taxation Committee, was the only Republican lawmaker to testify against the bill.
“Let’s be clear, this bill is not just a 6 percent sales tax on groceries and home heating fuel. This is $700 million in new taxes,” said Sen. Thomas.
“Maine people are already struggling to make ends meet,” he said. “Median personal income is down $15,000 in Maine over the past seven years. Grocery prices have never been higher. Oil prices have never been higher,” he said.
“We need government, but some things in life come before government,” said Thomas. “This plan would force us to pay the government before we can eat.”
“You can’t reduce taxes by raising taxes,” said Thomas. “In baseball, three strikes and you’re out. I think there are more than three strikes against this bill.”
Thomas said he would rather state government reduce spending. “We have to break the tax and spend cycle,” said Thomas.
After a full day of testimony from both supporters and critics, one thing is clear: the fate of the plan hinges on Democrats in the Tax Committee and forthcoming numbers from MRS. While the committee’s Democrats will exercise final control over clarification of the concept draft’s myriad vague spots, MRS will answer the pivotal question: Is this a tax increase on Mainers?