AUGUSTA — Republicans unveiled a tax-cut package Thursday that would lower the income tax, create an annual sales tax holiday and eliminate the sales tax on fuel used in all commercial vessels in the Gulf of Maine.
The $203 million package is similar to the one included in Gov. Paul LePage’s budget, but it makes some changes to target more of the benefits to Maine people and businesses, said Taxation Committee Chairman Sen. David Trahan, R-Waldoboro.
“In order to turn the state around, to get businesses here, to give people hope that there will be positive change, we needed to make a significant policy course change,” Trahan said. “We’ve done that.”
The Legislature’s Taxation Committee voted 8-4-1 on the plan Wednesday, and it is expected to be be presented to the Appropriations Committee today. The Taxation Committee vote represents a partisan split, with Republicans voting yes, Democrats favoring a smaller proposal voting no, and independent Sen. Richard Woodbury of Yarmouth submitting his own proposal.
The tax cuts are likely to be one of the major sticking points in the governor’s $6.1 billion two-year budget, particularly given Democratic reaction to the Republican plan on Thursday.
Democrats immediately rejected the package as “irresponsible” because it does not spell out how to pay for the loss in state revenue in future years.
“We absolutely support reducing taxes and the tax burden for all Maine people, but this irresponsible proposal will undermine our ability to govern,” Rep. Peggy Rotundo, D-Lewiston, the ranking minority member of the Appropriations Committee, said in a statement.
The Republican proposal reduces the top marginal rate from 8.5 percent to 7.95 percent in 2013.
Those who make less than $10,350 would pay no income taxes starting in 2012.
The plan would allow a family of four to earn up to $35,750 a year before paying any state income taxes, compared to the current law’s threshold of $21,400. That’s estimated to affect 70,000 filers who now pay some state income taxes but would have no tax liability beginning in 2012.
In addition to concerns about future cost, Democrats also have raised objections to the way the tax package is funded in the budget currently under consideration.
The administration has proposed several changes to the retirement system, including requiring state workers and teachers to pay more into the system. Money saved by those changes covers the cost of the tax breaks.
Even though Republicans control the House, the Senate and the governor’s office, Democratic support is needed to enact the budget, because a two-thirds vote is required for it to take effect immediately instead of 90 days after the session ends.
As currently proposed, the sales tax holiday would be the first weekend in October. On certain items, such as clothing and appliances, up to $1,500 would be exempt from the sales tax, Trahan said.
The package also eliminates the 7 percent tax on meals served in retirement homes, which has been a priority for both Democrats and Republicans for years.
The elimination of the sales tax on fuel used in the Gulf of Maine is aimed at encouraging fishermen to bring their fish to Portland, rather than Massachusetts, Trahan said.
The plan keeps LePage’s proposal to increase the estate tax exemption from $1 million to $2 million.
While Democrats agree with elements of the plan, they cannot support it moving forward, said Rep. Seth Berry, D-Bowdoinham, a member of the Taxation Committee. He called the Republican proposal “a massive push” of costs to the next biennium. He said Democrats on the committee will present a smaller package of cuts as an alternative.
“Most of the cuts, which are over half a billion dollars, don’t begin until the next biennium, so they aren’t paid for,” he said. “It’s very similar to spending now with your credit card and deciding that you are going to worry later about how you’re going to pay it.”
Susan Cover — 620-7015
scover@mainetoday.com
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