AUGUSTA – Giving hope to those who believe democracy flourishes through compromise, Republicans and Democrats in the so-called Gang of Eleven joined forces Wednesday to unveil legislation that would amount to a net tax increase for Maine.
“This is huge,” said Rep. Gary Knight (R-Livermore), top House Republican on the Taxation Committee and lead sponsor of An Act to Modernize and Simplify the Tax Code.
Knight said the goal of his bill is to improve Maine’s archaic tax code and attract businesses to the state. His plan is an attractive one: it cuts Maine’s income tax in half, from eight percent to four, eliminates the estate tax, and reduces the corporate income tax rate from 8.93 percent to 7.5 percent.
However, these tax cuts are accompanied by a drastic expansion of the sales tax, making the bill a net tax increase.
Under Knight’s bill, the sales tax base would be expanded to apply to nearly all consumer purchases with the exception of health care and education and numerous sales and excise tax rates would be increased.
According to information distributed at the press conference, the plan would raise an estimated $700 million in additional sales and excise tax revenues annually – $400 million by expanding sales tax collection and $300 million by increasing sales and excise tax rates.
While the bill would amount to a net tax increase, supporters believe Maine can “export” the added tax burden to tourists and non-residents. An overview of the bill states, “Because many non-residents share many of the benefits of Maine’s communities, roads, hospitals, environment and quality of life when they are here, while avoiding many of the taxes paid by residents only, the reforms also reflect a fairer apportionment of government costs.”
In order to ensure that the tax code remains progressive, a sticking point for Democrats, the bill would establish a sales tax credit for Maine’s low-income families. In practice, this would amount to a yearly payment from the state to low-income individuals worth up to $1,000.
The Gang of Eleven is comprised of five Democrats, five Republicans and one un-enrolled Democrat: Sens. Richard Woodbury (UD-Cumberland), Seth Goodall (D-Sagadahoc), Roger Katz (R-Augusta), Emily Cain (D-Penobscot) and Reps. Gary Knight (R-Livermore), Lance Harvell (R-Farmington), Mark Dion (D-Portland), Amy Volk (R-Scarborough), Sara Gideon (D-Freeport), Dennis Keschl (R-Belgrade) and Nate Libby (D-Lewiston).
Sen. Roger Katz (R-Augusta), the gang’s top Senate Republican, said Maine’s high income tax hampers efforts to compete with other states for businesses and workers.
“It’s like playing basketball with one hand tied behind your back,” said Katz.
Katz said the bill is good public policy, forged through bipartisan compromise. “This will be a good test for the 126th Legislature,” he said. “Will we look only to the next election, or to the next generation?”
Rep. Amy Volk (R-Scarborough) views the bill as a pro-growth plan that is necessary if Maine hopes to compete with other states.
“We’re seeing companies like Unum move executives out of the state,” said Volk. “Reasonable people understand that the flight of capital and talent from Maine is a problem,” she said.
She said the reduction of the income tax would encourage high-value professionals to live and work in Maine.
Senate Minority Leader Michael Thibodeau (R-Winterport) does not support the Gang of Eleven’s tax increase proposal.
“The Republican caucus is focused on rightsizing government,” said Thibodeau. He said any plan that amounts to a net tax increase is going in the wrong direction.
“The Gang of Eleven is asking the wrong question—it’s not about how we take money from Mainers, it’s about how much.”