AUGUSTA, Maine — House Republicans on Tuesday promoted an action by Democratic President Barack Obama as they urged their Democratic colleagues in the Legislature to make permanent in state law a set of income tax breaks mirroring those signed into federal law in 2015.
Democrats have spent more than a week fighting legislative Republicans and Republican Gov. Paul LePage’s administration over whether Maine should adopt the Democrats’ proposal to adopt the changes for one year as opposed to Republicans’ wish to enact them permanently.
A bill extending those breaks to businesses and individuals for the 2015 tax year gained initial approval Tuesday in the Maine House of Representatives on a 79-67 vote, with only two Republicans joining Democrats in support of the temporary fix.
“This will be one of the few times that … President Obama and I have agreed on anything,” Rep. Jeff Timberlake, R-Turner, said. “He signed this bill into law because the federal government understood how important this law was. I think it’s time the Maine Legislature also understands how important it is to pass conformity permanently.”
Timberlake opposes Democrats’ one-year fix and said making state tax changes permanent would keep more money in the hands of businesses, allowing them to invest more in growth and job creation.
Democrats expressed doubts whether the tax breaks put in place to help stimulate a foundering economy nearly a decade ago actually worked. They noted a range of new expenses facing state government, including an estimated $23 million shortfall in public school funding in the coming fiscal year.
“We’ve said all along that we support the aspects of tax conformity that put money back into the pockets of Mainers, but we refuse to have our families pay for ineffective and costly tax breaks while simultaneously neglecting our students and schools,” House Speaker Mark Eves, D-North Berwick, said in a prepared statement following the vote. “Today, Democrats agreed to responsibly fund tax conformity, shine a light on credits that may not work for Maine and address other critical needs facing our communities.”
But Timberlake and other Republicans seized the theme of creating a stable tax environment for businesses and individuals, a refrain often made by Democrats, who frequently argue for regulatory stability for businesses.
“We were not elected to create an unpredictable and unstable environment for Maine businesses to operate in,” Timberlake said. “It’s time we feed this economic engine, the business community, the mom-and-pop shop, the farmers and other businesses throughout the state of Maine and the individual taxpayer.”
The conformity bill keeps in state law a range of tax breaks covering everything from mortgage interest deductions for homeowners to tax credits for businesses that invest more than $2.5 million per year on capital investments.
Leading Democrats said extending all the breaks indefinitely without first determining whether they actually stimulate economic growth was risky business for the state’s budget.
Rep. Ryan Tipping-Spitz, D-Orono, offered an amendment to the bill that would provide two years of tax conformity for most taxpayers but would only extend the Maine Capital Investment credit for one year. LePage and most Republicans in the Legislature want the credit to be made permanent.
The Tipping-Spitz amendment would instead direct the $23 million used for the tax credit to public school funding. He argued Tuesday that not doing so would increase property taxes in communities struggling to meet the high costs of education.
“We should work to make our tax code predictable and we should support our homeowners, small businesses, students and teachers,” Tipping-Spitz said. “That doesn’t mean we should blindly accept a policy — the Maine Capital Investment Credit — whose effectiveness is questionable at best. Due diligence demands that we, at least, push the pause button on that to determine whether it’s a good use of taxpayer dollars. In the meantime, our schools need the clarity and security that we can provide by filling the $23 million gap they’re facing.”
Republicans accused Democrats of dragging their feet on the tax issue, creating anxiety and uncertainty in the business community as they awaited a final decision so they could file their taxes for 2015.
“Today is Feb. 9, folks,” House Minority Leader Ken Fredette, R-Newport, said. “We have people out there that need to file their tax returns … while we sit down here talking about tax policy and whether or not to conform to the federal budget that was recently passed. They are expecting us to provide leadership on this issue, so they can file their returns properly for 2015 and plan on their businesses for 2016.”
Fredette said the Tipping-Spitz amendment would take money from a tax bill and move it to education without any public hearings or process. He said Republicans are open to exploring whether the Legislature should find more funding for public schools, but he questioned whether the tax conformity bill was the appropriate venue for that.
“That’s blindly accepting an unacceptable policy,” Fredette said addressing Eves during the debate.
Rep. Peggy Rotundo, D-Lewiston, the House chairwoman of the Legislature’s budget-writing Appropriations Committee, said Democrats support parts of LePage’s proposals on tax conformity that are aimed at helping the middle class and small businesses but said tax breaks also need fair scrutiny.
“Fiscal responsibility demands that we take a hard look at whether this particular tax break for large multistate corporations is paying off with job creation,” Rotundo said. “We need to address education needs, the drug crisis and the needs of seniors and veterans.”
The bill will go to the Senate, where Republicans hold the majority and appear unlikely to approve the House version of the tax conformity legislation.