Governor Paul LePage is planning meetings in several towns and cities in Maine to outline what residents would save — and what they would forfeit — under his tax reform plan. PHOTO BY STEPHEN FAY

Governor touts tax reform proposal



AUGUSTA — Governor Paul LePage says if the Legislature does not approve his proposal to phase out the state income tax, Maine may as well fold its cards on significant tax reform.

The gradual elimination of the income tax is the cornerstone in his two-year, $6.3-million budget, he said in an interview with the American Feb. 4.

“A Maine without an income tax will allow more people a shot at the American dream,” LePage said. “You have to commit to eliminating the income tax.”

According to calculations by the Office of Policy and Management (OPM), Ellsworth would forfeit $364,689 in revenue sharing but reap $2.2 million with the first phase of income tax reductions.

Ellsworth residents, according to the statistics, paid $7.4 million in state income taxes in 2013.

“There will be a 40 percent reduction of the income tax at the state level, incorporating the reduction in 2011,” said OPM Director Jonathan LaBonte.

The Governor’s proposal would reduce the state’s top income tax rate from 7.95 percent to 5.75 percent beginning on Jan. 1, 2016.

The current rate, adopted by the Legislature in 2011, lowered the top income tax rate from 8.5 percent to 7.95 percent.

“My tax cut plan lays out the first phase of eliminating the income tax by returning $300 million to the Maine people,” LePage said.

He said he also will propose a constitutional amendment in 2016 to mandate that revenue growth be applied toward eliminating the income tax.

If the referendum succeeds, Maine would be the first state in the nation to approve such an amendment.

Asked what portion of the budget would be the most problematic as it winds its way through the Legislature, the Governor said: “All of it.”

LePage was scheduled to take his tax reform proposal before voters Wednesday evening at the Westbrook Performing Arts Center in Westbrook.

It is the second of several town meeting style events the Governor has planned around the state. The first was Monday in Waterville.

LePage arrives armed with a printout of what residents in virtually every community in Maine collectively paid in state income taxes in 2013, what they stand to gain in the proposed first round of income tax cuts, which includes the cut instituted in 2011, and what each municipality would forfeit with the loss of revenue sharing funds.

The distribution of $60 million in revenue sharing funds to towns and cities would be eliminated in the second year of the proposed budget.

These funds represent a portion of what the state collects in state income taxes, the corporate income tax, the franchise tax on financial institutions, service provider taxes and sales and use tax revenue.

LePage said communities could make up the loss of revenue sharing by taxing nonprofit organizations.

The nonprofits would pay property taxes on half of their assessed property values. The first $500,000 in value would be exempt.

OPM Director LaBonte said the figures in the printout do not include other proposed tax cuts, such as eliminating the estate tax, the tax on military retirement income and tax decreases on all other pensions.

The Governor hopes to cover the lion’s share of the loss in income tax by hiking the sales tax by 1 percent to 6.5 percent — a rate that had been slated to drop back to 5.5 percent in the coming fiscal year.

The budget also would eliminate dozens of current goods and services that are exempt from taxes — everything from hairstylists and dating services to movie theater tickets and dry cleaning.

There currently are seven states that have no state income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

Two states only tax interest and dividend income, not earnings — New Hampshire and Tennessee.

New Hampshire collects taxes on interest and dividend income exceeding $2,400 or $4,800 for joint filers with exemptions for age, blindness and disability.

Tennessee only collects tax on interest income from bonds, notes and dividends from stock exceeding $1,250 or $2,500 for joint filers.

The conservative Tax Foundation, a think tank based in Washington, D.C., said LePage’s plan, when fully implemented in 2021, would improve the state’s ranking from 33 to 23 on the organization’s “State Business Climate Index.”

The Maine Municipal Association (MMA) maintains the loss of revenue sharing to towns and cities will force local governments to raise property taxes.

Larger nonprofits that would pay property taxes for the first time say they may not pay their full share of taxes, but they provide other local benefits, such as jobs.

“Everyone thinks we are going to destroy our communities,” LePage said. “The MMA is concerned about the town budget. I’m concerned about the residents who live in those towns.”

LePage said Colby College in Waterville, where he formerly was mayor, “is worth more than the entire city of Waterville.”

The first column shows what Hancock County residents paid in state income taxes in 2013. The second column indicates what residents stand to gain by adopting the Governor’s first phase of income tax reductions. The figure includes the income tax cuts instituted in 2011. The third column shows what communities would forfeit should revenue sharing be eliminated. The figures were compiled by the Office of Policy and Management.

The first column shows what Hancock County residents paid in state income taxes in 2013. The second column indicates what residents stand to gain by adopting the Governor’s first phase of income tax reductions. The figure includes the income tax cuts instituted in 2011. The third column shows what communities would forfeit should revenue sharing be eliminated. The figures were compiled by the Office of Policy and Management.

Jacqueline Weaver

Jacqueline Weaver

Reporter at The Ellsworth American
Jacqueline's beat covers the eastern Hancock County towns of Lamoine through Gouldsboro as well as Steuben in Washington County. She was a reporter for the New York Times, United Press International and Reuters before moving to Maine. She also publicized medical research at Yale School of Medicine and scientific findings at Yale University for nine years.[email protected]

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