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Maine panel airs bipartisan tax overhaul bill

Glenn Adams, Associated Press

AUGUSTA, Maine (AP) -- As a legislative committee heard testimony Friday on a bill calling for a historic overhaul of Maine's tax code, there was near-universal agreement on one point: appreciation for the efforts of the bipartisan "Gang of 11."

But that's about where the harmony ended. Businesses, especially those associated with the state's huge tourism industry, pummeled the proposal as harmful. Beer and wine wholesalers said it would be unfair and chase customers to New Hampshire. Nonprofits said millions of dollars in donations would be lost.

That contrasted with municipalities' cautious approval of the bill, which they say would bring welcome property tax relief. Supporters also cast the bill as an opportunity to replace an antiquated and flawed state tax code that leaves the Legislature burdened by repeated budget crises.

From both sides came congratulations to the working group of five Democrats, five Republicans and an independent, known as the Gang of 11, which worked out of the sight of lobbyists and the public for months on the sweeping package.

"They parked their partisanship at the door," said Charles "Chip" Morrison, chief executive officer of the Androscoggin County Chamber of Commerce, who joined other groups that were neutral on the bill.

Still in concept form, the bill would increase Maine's sales tax from 5 percent to 6 percent and do away with dozens of exemptions on items including groceries, heating oil, amusements, labor and funeral, barber and beauty parlor services. At the same time, the measure would slash the individual income tax in half, to 4 percent, and eliminate nearly all deductions from income.

In addition, it seeks to eliminate the estate tax, increase the lodging tax from 7 percent to 8 percent, plus an additional 2 percent to promote tourism, and increase from 7 percent to 8 percent the tax on prepared meals. Cigarette taxes would rise from $2 to $3.50 a pack, and taxes on beer and wine would rise. The bill, still in concept form, includes numerous other changes.

"Is it a panacea? Is it perfect? Absolutely not," the main sponsor, Rep. Gary Knight, R-Livermore Falls, told the committee. "I think we got it right."

The main architect of the plan, independent Sen. Dick Woodbury of Yarmouth, defended the proposal as a "very strong pro-growth plan" for the state that puts more of the tax burden on nonresidents and takes big strides toward property tax relief by exempting the first $50,000 instead of $10,000 from property taxes. He acknowledged that "it's technically true" that general fund revenues would increases by $150 million through the bill, but said that money goes to direct property tax relief and municipal revenue sharing.

The property tax relief "is greater than advertised," Republican Sen. Doug Thomas of Ripley told his fellow Taxation Committee members. The bill raises sales taxes at a time when Mainers can least afford it, eliminates a longstanding principle that basis necessities like food and shelter will not be taxed, and signals to tourists that Maine vacations will be more expensive.

"The real stinker in this bill" is the sales tax increase, Thomas said. "Do we really think Maine people should pay 6 percent to buy groceries or heat their home?"

Thomas was joined in opposition by Maine's skiing industry, independent colleges, auto dealers, insurance companies, accountants and others.

"Maine consumers are fed up with taxes," said Cheryl Timberlake of the Maine Beer and Wine Distributors Association.

Vaughn Stinson, CEO of the Maine Tourism Association, took issue with those who claim a rise in meals and lodging taxes won't have an impact, saying the increases will cause tourists to spend less in other Maine businesses.

"Tourism is a highly competitive industry, and I can't stress that enough," Stinson said.

Maine State Chamber of Commerce President Dana Connors said the business group had to oppose the bill because so many questions about its impacts remain. With statutory adjournment looming June 19, there's limited time to refine the legislation.

Joe Tyler, owner of an auto parts and garage in Winterport, said the 6 percent tax he'd have to collect on repair services would drive away business, and the higher tax on cigarettes would punish those who can least afford it.

Officials from Maine municipalities offered their support for the bill, although they said questions remain about its details. Sanford City Councilor Bradford Littlefield said it's "a good alternative to the do-nothing option" of Gov. Paul LePage's $6.3 billion budget proposal for the two years that will start in July. The Republican governor's budget included a two-year suspension of revenue sharing, a plan that has alarmed cities and towns.

The Maine Municipal Association spoke in favor of the bill but acknowledged numerous questions about its impact need to be addressed.