AUGUSTA, Maine — The Maine Senate on Monday passed an amended bill that would use any surplus revenue in the state’s general fund to gradually reduce state income tax rates through future budgets.
Republicans said the bill, which first would increase the size of the top income tax bracket and then gradually reduce the highest income tax rate to 4 percent, could provide much-needed tax relief for Mainers if and when revenues improve.
“I can’t imagine opposition. This takes revenue above the state’s statutory spending cap and simply returns that money to people that paid it in,” said Senate Majority Leader Jonathan Courtney, R-Springvale.
The bill passed through the Senate without debate on Monday, but there was significant discussion last week during its first reading.
Many Democrats viewed LD 849 as a backdoor attempt at adopting a Taxpayer Bill of Rights, an idea that twice has been rejected by Maine voters in the last decade.
“It seems to me that the people of Maine have had the opportunity to weigh in on whether to put our tax policies on autopilot. Every time, they had have said no, but here we are again,” said Sen. Phil Bartlett, D-Gorham. “I think this approach is reckless. If we want to decrease taxes, we should work that into our budget process.”
LD 849 now goes to the House, where additional debate is expected but where the bill is likely to pass.
Gov. Paul LePage has said he not only supports the bill but would like to see Maine move toward zero personal income tax in the future.
“That’s what I would like to do,” he said in an interview with Mal Leary of Capitol News Service. “I am not sure we can get there, but that is what I want to do.”
The tax bill is a carry-over from the first regular session, originally proposed by former Sen. David Trahan, R-Waldoboro. Taxation Committee members ultimately declined to put forth any wholesale tax reform plans but some felt that LD 849, slightly amended, was still a good step.
An amendment approved in the Senate last week would use excess revenue first to fully support the state’s underfunded circuit-breaker program and then to provide tax relief.
Sen. Chris Johnson, D-Somerville, attempted to offer an amendment on the floor that would ensure that municipal revenue sharing, education funding and funding of the circuit breaker program were addressed ahead of tax relief. The state has never fully funded public K-12 education at 55 percent.
Johnson’s amendment failed.
During the last session, the Republican-controlled Legislature already enacted a tax cut as part of the $6.1 billion biennial budget. That cut, a reduction of the top income tax rate from 8.5 percent to 7.95 percent, doesn’t go into effect until 2013.
The Maine Center for Economic Policy, a left-leaning policy group, called LD 849 a “wolf in sheep’s clothing” and said approximately 75 percent of the benefit goes to the top 20 percent of Maine taxpayers.
Rep. David Webster, D-Freeport, said the proposal uses one-time surpluses that typically would be put in the state’s “rainy day” fund to make permanent cuts.
“This is as irresponsible as taking on a car payment after winning a $100 on a scratch ticket,” he said. “That’s no way to pay the bills.”
Courtney said Maine’s income tax rate has long been one of the biggest deterrents for potential businesses.
“People say, ‘Why do this? We never have money.’ But in the 1990s, there was a ton of money and we missed an opportunity to provide true tax relief,” he said earlier this year. “This is a long-term commitment going forward. It sends a strong message across the country that we’re not going to stop until the top rate is 4 percent.”
Reducing income taxes without accounting for the lost revenue elsewhere could create big holes in the state budget, but Courtney said it forces lawmakers to look hard at spending.
“There is enough money for state government without those high income taxes,” he said.
Democrats tried to reduce the income tax rate in 2008 and proposed offsetting that revenue by setting new sales taxes on goods and services and by raising the meals and lodging tax. The plan was approved by the House and Senate and signed into law in June 2009.
Republicans, arguing that the proposed changes were too complicated and did little to relieve the tax burden on Mainers, launched a people’s veto. With more than 60 percent of the vote, Mainers rejected the Democrats’ plan the next year.