|5/21/2015 12:08:00 PM|
Eye on Augusta: GOP "Timbernut" Plan Puts Republicans at Odds with Governor
by Andy O’BrienDuring the 2014 campaign Gov. Paul LePage talked often about cutting the income tax, but he never said he would attempt to raise other taxes to pay for it. That's probably why Republican legislators, many of whom have signed strict "no new taxes" pledges, have been so quiet about the governor's ambitious plan to raise and vastly expand sales taxes, eliminate municipal revenue sharing, and tax nonprofit organizations to offset nearly $300 million in proposed income tax cuts.
"Let's say we had a lot of aches with the governor's plan," said GOP Appropriations Committee member Rep. Jeff Timberlake of Turner. "I think Democrats and the Governor were closer than Republicans and the Governor."
Some Income Tax Cuts, No Revenue Sharing Cuts
However, Timberlake said Republicans strongly agreed with the governor's desire to cut income and inheritance taxes, which they believe would entice more wealthy people to come to Maine and spend money. Last week, GOP leaders released their own alternative tax proposal, which offers a more modest income tax cut and a lot fewer consumption tax increases to offset them.
Dubbed the "Timbernut" plan after its chief architects Timberlake and Rep. Bob Nutting (R-Oakland), the proposal would create three tax brackets. It would keep tax rates on individual incomes below $5,200 at 0 percent and would lower rates to 5.95 percent for those earning between $5,200 and $50,000 and 6.5 percent for households earning over $50,000 in 2017. Like the LePage plan, Timbernut would drop the top corporate income tax rate from 8.93 percent to 6.75 percent. It wouldn't phase out the inheritance tax as LePage proposed, but it would exempt estates worth up to $5.5 million from the tax.
The GOP proposal would leave the sales tax at 5.5 percent and would not expand it to over 200 goods and services, as the governor's plan would do. Timbernut would also slightly raise revenue sharing to towns, while the governor's budget would eliminate it. It would leave the Homestead exemption the way it is at $10,000, while the LePage plan would double it for homeowners over 65 and eliminate it for everyone else. Like the LePage plan, Timbernut would exempt military pensions from the income tax, but would not exempt non-military pensions, as the governor aims to do.
Timbernut would cancel the governor's proposed tax on land owned by large nonprofits, which was also rejected unanimously by the Appropriations Committee last week. Given the unanimous bipartisan opposition from two legislative committees, it's safe to say that revenue sharing will not be cut this year and the nonprofit tax is dead for now.
Overall, the Timbernut plan promises an income tax cut of about $380 million over the next two years, which GOP lawmakers say will be paid for by raising the food and lodging tax from 8 to 9 percent, slapping a 5.5-percent tax on some prepared food, and raising the tax rate on personal home care services like home health care support, as well as cable and satellite television and radio services, from 5 to 6 percent, as the governor's plan also does. Unlike the governor's proposal and the Democratic plan, the Timbernut plan does not offer any property or sales tax relief credits.
At a press conference Senate President Mike Thibodeau (R-Waldo County) said the middle class would be "the biggest winners" under the GOP's new proposal.
"This is a commonsense proposal that I believe will have strong support in the Legislature," said Thibodeau. "Mainers deserve tax relief, and a simplified tax code. This plan does not include complicated bureaucratic rebate programs. Instead, it allows Mainers to keep their money without having to apply for it by filling out a form and waiting for their check to arrive."
Democrats criticized Timbernut's proposal, but signaled that they were ready to negotiate.
"Democrats will be at the table fighting for a responsible budget that grows the economy from the middle out, with targeted tax cuts for middle- and low-income families and the wealthy paying their fair share," said House Speaker Mark Eves (D-North Berwick) in a statement. "The new Republican proposal provides zero new property tax relief, while prioritizing huge tax breaks to corporations and the wealthy."
The Washington D.C.-based Institute on Taxation and Economic Policy (ITEP), which has been closely following Maine's tax reform debate, estimates that average Mainers earning less than $57,000 a year (or about 60 percent of taxpayers) would see a slight tax increase under the Timbernut plan, while upper income brackets would see a windfall tax cut. The analysis, which ITEP released with the liberal-leaning Maine Center for Economic Policy (MECEP), estimated that the top 1 percent of Mainers (those earning over $371,000 per year) would see an average tax cut of $8,323, while those earning between $36,000 and $57,000 would end up paying an extra $33 a year. The two groups have argued that the Democratic tax plan would, on average, deliver a tax cut for the bottom 95 percent of Maine taxpayers. Maine Revenue Services estimates that over half of the benefits from the governor's tax plan would go to the top 10 percent of earners.
It is not yet known whether the governor will be receptive to Timbernut, and his office did not return requests for comment. However, Independent Rep. Jeff Evangelos of Friendship offered his own prediction.
"I expect LePage will soon do as he usually does: erupt like a volcano and plunge the state into another budget stalemate. All to give his rich friends a tax break at the expense of low- and middle-income people," said Evangelos. "You know the Republicans are in political trouble over this idea when Senator Hamper, the Republican Chair of the Appropriations Committee, indicated that he's considering keeping all tax codes the same as last year, a total rejection of the LePage plan. The people aren't stupid and realize government services and roads need adequate revenue to maintain our state. Apparently the lightbulb went off with the Republicans and now they're scrambling around like a cat chasing its tail."
Rep. Jeff Timberlake, who says he has met with the governor on the plan, says LePage has "anxieties the same way we got anxieties when we saw his [plan]." Timberlake said he believed that if the Legislature delivers the GOP plan to the governor's desk as written, "he's going to be happy." However, Timberlake did acknowledge that compromises still have to be made with Democrats in order to receive the 2/3 bipartisan support of the Legislature needed to pass a final tax package and override a governor's veto.
Given the amount of political capital the governor has spent on his tax plan, a showdown with his own party is not out of the realm of possibility. In 2013, Republicans and Democrats both voted to override the governor's veto of the bipartisan budget that they had passed, which raised sales taxes in order to fill a $400 million shortfall created by the governor's 2011 tax cuts.
Sen. Hamper, chair of Appropriations, has suggested that a compromise tax plan could be finished as early as the end of Memorial Day weekend, but Timberlake is skeptical that will happen:
"Sweet dreams are made of these," he sang, quoting the Eurythmics song.
With hundreds of bills to vote on, daily rashes of vetoes to consider, and several controversial welfare restriction proposals to debate, the Legislature still has a lot of work to do before its tentative adjournment date of June 17. The session could very well go into July, as it did during the first regular session of 2013.
Of course, the Legislature will need to pass a budget before the next fiscal year begins on July 1 or face another state shutdown.
For a full schedule of the House and Senate, go to http://legislature.maine.gov/house/sch_sess.htm
House livestream: http://www.maine.gov/legis/house/h_video.htm
Senate livestream: http://www.maine.gov/legis/audio/SenateV.html
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