AUGUSTA, Maine — A bill that would ease the tax rate on capital gains elicited a party-line recommendation against passage Friday in the Legislature’s Taxation Committee amid debate over what effect the measure would have on state revenues and a fragile economy.

LD 65, “An Act to Reduce the Income Tax on Capital Gains,” will go to the Legislature with an 8-5 “ought not to pass” recommendation, with majority Democrats voting as a bloc to oppose the measure. It sought to separate capital gains derived from the sale of assets held for more than a year from a person’s regular income and tax that amount at 3 percent. That would represent a tax cut for most Maine state taxpayers, who currently pay between 2 percent and 8.5 percent in personal income taxes on capital gains.

Michael Allen, an analyst with Maine Revenue Services, estimated that the bill would ease taxes statewide by up to $40 million, though he told the committee Friday that he couldn’t calculate the effect on state coffers exactly because cutting the capital gains tax could change the amount of capital gains realized in Maine.

“The question is how much of that $40 million would be offset by additional capital gains realization,” said Allen. “It is probably one of the most complicated areas to try to forecast.”

Allen said the capital gains tax realizations would have to double in Maine in order to make up for $40 million impact of the bill, which was sponsored by Rep. Richard Malaby, R-Hancock.

Sen. Doug Thomas, R-Ripley, the ranking Republican on the Taxation Committee, said he saw the bill as an opportunity to spur economic development.

“I see a capital gains tax cut as a way to reward people for providing jobs and making our economy grow,” said Thomas. “We could possibly end up making money on this bill.”

Sen. Anne Haskell, D-Portland, said she saw merit in Thomas’ point but said there were too many unknowns in Malaby’s bill for her to support it. She said she favors a “claw-back provision” that would allow the Legislature to walk back the tax cut if it didn’t produce the expected results in terms of jobs and private investment.

“We want to know how many jobs are going to be created. We want to know what that number is and the timeline for doing it,” said Haskell. “I couldn’t go to my taxpayers and say I can adequately model that if we provide this $40 million cut.”

In other bills dealt with by the Taxation Committee, lawmakers voted unanimously against a provision that would have exempted low-income people age 65 and older from paying property taxes and tabled a bill that would create a one-year window for landowners to withdraw from the state’s Tree Growth Tax Law without penalty. Members of the committee suggested they deal with the issue later in the legislative session when they consider several other bills related to the tree growth program.

Christopher Cousins

Christopher Cousins has worked as a journalist in Maine for more than 15 years and covered state government for numerous media organizations before joining the Bangor Daily News in 2009.