State House defeats 4 percent income tax

Posted Wednesday, March 28, 2012 in News

State House defeats 4 percent income tax

Mary Adams, who championed TABOR in 2006.

by Gina Hamilton

AUGUSTA -- After passing in the Senate last week, a bill which would have lowered Maine's top income tax bracket to 4 percent was defeated 72-61 in the House. 

LD 849, “An Act to Provide Tax Relief for Maine Citizens by Reducing Income Taxes,” proposed two significant changes to Maine’s tax system. The Maine Senate gave initial approval to LD 849 on March 15, but the House defeated the bill on Tuesday night. Bills that affect state revenues ultimately need a two-thirds majority to pass.

The bill had been criticized by Democrats as a GOP "end run" around the public to enact a Taxpayer Bill of Rights, or TABOR, which had failed numerous times at the ballot.  TABOR initiatives sought to put limits on the ability of the Legislature and municipalities to increase taxes, by requiring a public vote each time.

LD 849 would have ratcheted down state revenues by lowering Maine's income tax rates over time to a flat 4 percent.  This would have cut the state's income tax revenues almost in half.  About 75 percent of the benefits of LD 849 would have gone to the top 20 percent of taxpayers. 

The bill would have also raided 40 percent of all General Fund revenues that exceed budgeted amounts each year, as well as any revenues over the spending limit established by LD 1 in 2005.  Tens of millions of dollars that would have gone to the rainy day fund, the general fund for operating capital, construction and improvements, and retirement allowance fund and health insurance, would have been cut.

The bill was sponsored by Sen. Jonathan Courtney, R-Springvale.  

Proponents say that the measure is different from TABOR because it only focuses on surpluses.  Critics say it doesn't give the Legislature enough flexibility to deal with crises, such as the current DHHS funding debacle.  It could also prevent the state from funding 55 percent of education costs, as mandated by law.

Municipalities are concerned that it would have shifted tax burden to town, which would have to raise property taxes to make up for lost revenue sharing.

The Legislature passed a similar measure in 1995 when Republicans held a majority in the Senate. Democrats repealed the law two years later.

This bill was carried over from last year, however, the current language wasn't inserted until recently. Similar language was included in Courtney's LD 9, a proposal unanimously rejected by the Taxation Committee last year. 

If it had passed, LD 849 would have been likely to be challenged by a people's veto.

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