WESTBROOK — Gov. Paul LePage told about 300 people Wednesday that his proposed overhaul of Maine’s tax code may have some unwelcome provisions, but each is necessary to transition Maine from poverty to prosperity.
Central to that transition, he said, is reducing and eventually eliminating Maine’s income tax.
The response from an attentive audience was mixed. Many wondered how the proposal would affect their property tax rates, and about its impact on low-income earners and retirees.
LePage, who took about a dozen questions from the audience, gave an array of responses and occasionally wandered off-topic. However, at the end of the hour-long town hall meeting at the Westbrook Performing Arts Center, LePage returned to his central message: his plan would put more money in Mainers’ pockets.
“If the people of Maine want it,” he said, “I don’t mind working hard” to bring the message to residents.
The governor’s comment was an acknowledgment of the political obstacles confronting his tax overhaul, a complex initiative tucked into his $6.3 billion, two-year budget proposal. A similar tax reform plan was passed by the Democratic-controlled Legislature in 2009. It was quickly repealed by a Republican-led ballot measure that exploited sales tax increases and removing exemptions on a host of services.
LePage’s plan goes further, and as a result it could draw more enemies. It would eliminate municipal revenue sharing, prompting concerns that it could raise property tax rates.
Driving the changes is an income tax cut that would reduce the top rate from 7.95 percent to 5.75 percent. LePage has proposed paying for what is projected to be a $938 million cut over the next four years with other changes, including increasing the sales tax rate to 6.5 percent. The current rate is 5.5 percent, but it was supposed to fall to 5 percent at end of the fiscal year June 30. The Legislature initiated the temporary sales tax increase in 2013 to help balance the budget and pay for income tax cuts the governor signed into law in 2011.
“I’d by lying to say I’m not looking to get more (revenue) from the sales tax,” he said, adding, “it would also be fair to say that we’re looking for more property taxes.”
The governor also has proposed increasing the number of goods and services that are subject to the sales tax, such as amusements, ski lift tickets, and attorney and accountant services.
His plan also would end property tax exemptions for certain nonprofit organization, so many summer camps, hospitals, land trusts and private colleges could take a hit.
One woman asked the governor if he thinks that taxing nonprofits is ethical.
“I don’t know about the ethical part of it,” he said, but his plan to cut the income tax would likely lead to a “flood of donations to nonprofits.”
LePage’s response drew some groans from the audience, a mix of local officials, residents and activists from liberal interest groups. For the most part, however, members of the crowd were quiet as the governor rattled off numbers that even he acknowledged are confusing.
“I have so many numbers in my head,” he said at one point. “I want to get them right.”
The jumble of statistics provided Wednesday underscore the challenge for the LePage administration. The governor has vowed to take his tax plan directly to Mainers. Wednesday’s event was the first of at least two town hall meetings that the administration has planned. The other, not yet scheduled, will be in the Bangor area.
At one point LePage was asked if he thinks his plan will make it through the divided Legislature, which can change it or scrap it before it reaches his desk again. He expressed confidence, while acknowledging the many political obstacles that await.
“I hope (it passes). I’m willing to put the energy into it. If they say no, then we’ll know” they want high taxes, he said.
LePage’s plan is centered on the belief that cutting taxes, and income taxes in particular, will boost economic activity and business investment. That theory, embraced by leading national conservatives, is being put to the test in at least 20 other states led by Republican governors. Like LePage, at least a dozen have proposed raising sales taxes and eliminating exemptions to offset a significant loss in income tax revenue.
Progressive groups counter that cutting income taxes creates revenue gaps in state budgets, and that the leading beneficiaries are high earners. LePage acknowledged that his proposal is designed to lure more millionaires and wealthy retirees to the state.
“When you’re a millionaire in Maine, you leave,” he said. “I’m trying to keep them here.”
Democratic lawmakers in Maine have been more reserved in their critique of LePage’s plan, a concept similar to the one that some current lawmakers voted for in 2009. However, vocal Democratic opposition has been replaced by organizations and groups that could lose in the governor’s plan. Many are expected to turn out for public hearings on the governor’s budget, which begin next week.
On Wednesday, David Levesque, an attorney and president of the Maine State Bar Association, rose to ask LePage if he’d reconsider his plan to apply the sales tax to legal services.
“Functionally, it will hurt people who are already down,” said Levesque, adding that clients in legal trouble or in divorce proceedings would take the brunt of the cost.
LePage responded, “I’ll reconsider if the people of Maine want me to keep the income tax.”
The administration has started pushing back against criticism from opponents of the budget, including communities that have been organizing against the governor’s plan to eliminate municipal revenue sharing. LePage has argued that his budget would cut out the middle man, driving targeted property tax relief in the form of credits directly to homeowners while circumventing what he has described as municipal officials unwilling to rein in spending.
The governor, without specifically saying so, has implied that the income tax cut would more than make up for potential property tax increases.
The administration has tried to draw distinction between LePage’s proposal and L.D. 1495, the repealed tax reform law. Proving that difference between the 2009 plan and the current proposal may be critical to gaining Republican support in the Legislature. Many state lawmakers were either involved in the repeal effort or have cited Democrats’ support of raising taxes on goods and services during legislative campaigns.
On Wednesday, LePage said he expects that Republicans and Democrats will oppose his plan. The key, he said, is getting enough lawmakers from both parties to pass it.
Steve Mistler can be contacted at 620-7016 or at:
smistler@pressherald.com
Twitter: @stevemistler
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