|4/9/2015 10:14:00 AM|
Eye on Augusta: Committee Rejects Nonprofit Tax & Revenue Sharing Cuts, Split on Income Tax & Sales Tax Changes
by Andy OBrienThis week, the Legislature's bipartisan Taxation Committee unanimously rejected several of the governor's tax proposals, but split over provisions to raise the sales tax to reduce income taxes.
The committee unanimously voted down the governor's proposed tax on land owned by nonprofit organizations worth over $500,000 and rejected the elimination of revenue sharing to municipalities after strong protests by municipal leaders who said it would lead to increased property taxes and cuts to local services. The committee recommended flat-funding revenue sharing, which is only a third of the amount mandated in state law.
Both parties agreed on eliminating income taxes for households earning under $9,699. Republicans voted to increase the number of tax brackets from three to four while cutting the tax rate to 5.75 percent for households earning between $9,700 and $30,000; 6.5 percent for those earning between $30,000 and $50,000; and 6.95 percent for anyone earning over $50,000.
Taxation Committee co-chair Rep. Adam Goode (D-Bangor) said Democrats did not yet have a specific income tax plan because they wanted to make sure they had enough revenue to pay for it first. He said Democrats were concerned that the Republican plan pushes off tax cuts into future years without a plan for offsetting them with enough revenue. He noted that income tax cuts passed in 2011 forced the Legislature to raise sales taxes two years later to stabilize revenues. He added that the Democratic plan would likely have five income tax brackets, with higher rates for the wealthiest households.
The committee unanimously voted to exempt military pensions from income taxes, but were split on LePage's plan to also exempt pensions for non-military retirees. Republicans supported the latter initiative, while Democrats voted against it on concerns that the non-military pension tax cut would create a $70 million budget shortfall in future years. Republicans also supported LePage's plan to drop the corporate tax rate, while Democrats opposed it.
The committee was divided on the estate tax, with Republicans voting to phase out taxes on inheritances over $2 million and Democrats voting to keep the tax.
"31 states do not impose an estate tax at all, so that's who we're competing with," said Republican co-chair Sen. Earle McCormick (R-Kennebec).
According to Maine Revenue Services, out of 13,000 deaths in Maine in 2013, 154 estates were affected by the inheritance tax, and only 84 of those groups of heirs who paid the estate tax were Maine residents. In 2013, the estate tax generated $32 million in revenue.
Republicans also voted to increase the sales tax from 5.5 to 6.5 percent to help pay for their larger income tax cuts. Democrats voted to keep the sales tax at 5.5 percent. Voting with the Republicans, Independent Rep. Gary Sukeforth of Appleton said he was confident that the governor's proposed sales tax credit would offset the sales tax burden for low-income people. The committee unanimously voted to accept the governor's plan to expand sales taxes to hundreds of items and services, but rejected others. The committee voted unanimously to take out the governor's proposed taxes on haircuts, museum ticket sales, private waste management services and professional services like legal services, accounting and engineering. The committee unanimously supported the "snack tax" on items such as chips, nuts, pastries, and ice cream. The committee rejected LePage's plan to cut taxes on short-term auto rentals and meals at restaurants, but also voted to raise the lodging tax to 9 percent.
Republicans voted to support the governor's plan to eliminate itemized deductions, including the charitable and mortgage interest deduction. Democrats voted to keep them.
"Itemized deductions are really designed to take care of the rich," said Rep. Bruce Bickford (R-Auburn) in support of the governor's plan.
Three Democrats also recommended legalizing and taxing marijuana, which they said could generate $30 million in revenue.
Dems Vote Against General Assistance Cuts
On a party-line vote, Democrats on the Health and Human Services Committee voted 7-6 against the governor's proposal to eliminate food and housing assistance programs for legal non-citizens.
"The committee believes, based on overwhelming testimony and information that supporting new Mainers is critical to building a better economic future for Maine and that a relatively small amount of temporary support to new Mainers pays significant dividends," stated the majority report.
Voting in the minority, Republicans on the HHS Committee argued that Maine is a small, rural state that can't meet the needs of these new immigrants coming into the state. At a recent forum in Saco, Governor LePage again made the widely discredited claim that asylum seekers are bringing diseases like hepatitis C, HIV and tuberculosis to Maine.
Democrats on the HHS Committee also voted against the governor's plan to cut reimbursement rates for General Assistance to large cities for the homeless and very poor. The LePage administration argues that the current formula gives large cities a "perverse incentive" to spend more money on the poor. However, municipal officials point out that annual audits by the state have found cities, including Portland, to be in compliance with the law, which requires that municipalities provide GA to anyone who proves the need for support. They argue that the formula change would just shift more of the cost of providing GA to the municipalities with the most eligible applicants. The majority report noted that housing represents about 82 percent of the GA budget and recommended that the Legislature create a special fund for the state's homeless shelters, which have been chronically underfunded in recent years. Currently, GA is used to fund shelters, such as Preble Street in Portland, which has come under fire from the LePage administration for not properly means-testing tenants, some of whom were found to have money in the bank.
The HHS Committee unanimously supported the governor's initiative to provide home-and-community-based care for approximately 3,000 individuals currently on waitlists.
The committee also voted 8-5 to reject the governor's proposed $47 million cut to Drugs for the Elderly and the Medicare Savings Program, which help low-income seniors and individuals with disabilities pay for medicine and health care.
Republicans and one Democrat voted 7-6 to support the governor's plan to eliminate MaineCare coverage for Methadone treatment, in spite of overwhelming oppositionfrom the medical community.
HHS Democrats recommended paying for the programs they voted to fund by bringing back the inheritance tax on estates over $1 million, which they estimate could bring in $15 million; raising the cigarette tax to $3.50 a pack to bring in $40 million; and canceling income tax cuts for the top 10 percent of Maine earners to generate $172 million.
So What Do These Votes Mean?
The Taxation and HHS Committee votes are only recommendations meant to give guidance to the 13-member Appropriations Committee. Certainly, unanimous committee votes have the most chance of making it into the final budget, but the most controversial items - including the proposed income tax cuts and welfare reform - will have to be resolved through tense negotiations. After that, it'll be up to Republican and Democratic leaders to gather the 2/3 votes necessary for a veto-proof majority. Gov. LePage was on vacation in Jamaica this week, but he'll soon be back fully rested, recharged and ready to brawl.
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