AUGUSTA — Prospects brightened Friday that Mainers will see their state income taxes cut next year, as Republican lawmakers introduced a tax reform plan that would reduce the income tax rate for all earners.

The move means that all the major State House political forces – the Republican and Democratic parties and Gov. Paul LePage – are promoting income tax reductions as part of the state budget process.

Political events still could prompt lawmakers to shy away from cutting the tax and the revenue it produces, but the broad support for the concept offers common ground for the Legislature to forge an agreement in the coming weeks.

The Republican plan differs significantly from the plan LePage released Jan. 9. For example, LePage wants to eliminate revenue sharing, increase the sales tax and apply it to more goods and services. The Republican plan doesn’t do that.

However, the LePage and Republican plans do share some features, including reducing corporate and estate taxes.

Democrats, who control the House of Representatives, rolled out a plan in April that cuts income tax rates for the middle class but keeps the rate where it is for high-income earners.

The three competing plans will be negotiated as part of the state’s approximately $6.57 billion two-year budget, which must be ratified by the Legislature before July 1. The Republican plan gives lawmakers more options to craft a budget, with or without LePage’s support, and the two parties may have the votes to override a potential veto by the governor.

Asked Friday how LePage reacted to the Republican proposal, Senate President Mike Thibodeau, R-Winterport, said the governor was still assessing it.

Republicans have been cool to LePage’s plan. That’s because they campaigned against some of the things LePage proposes – such as broadening the sales tax base – when they were included in a tax reform proposal that Democrats pushed through in 2009. The Republican-led effort to overturn the Democratic initiative was successful, with voters killing the plan at referendum in 2010.

Rep. Kenneth Fredette, R-Newport, alluded to the results of that 2010 referendum in discussing the Republican plan Friday.

“As legislators we’re simply looking to that as an indicator of where Maine people were at the time and I think that’s similar today,” he said.

Republicans also have balked at the governor’s plan to eliminate municipal revenue sharing, which provides money to help cities and towns pay for services such as education and road maintenance that are largely funded by property taxes.

Thibodeau said Republicans want to keep property tax rates in check. “Folks at home are already struggling with exploding property taxes,” he said. “We didn’t want to turn our back on that responsibility.”

Overall, the Republican plan would reduce Mainers’ income taxes by about $380 million over the next two years, while lowering the top rate from 7.95 percent to 6.5 percent. Increases in the meals and lodging tax appear to offset a large portion of the income tax cut.

The governor had proposed lowering the top rate to 5.75 percent, while the Democrats’ maintained the current top rate for people earning more than $150,000, but lowered the rate for people earning less.

A ‘PATH FORWARD’

The debate over the three plans will likely turn on who benefits from the income tax cuts and by how much. Democrats and Republicans have sharp ideological differences on tax policy and how tax cuts at different income levels affect the economy.

Thibodeau said the Republican plan was simple and delivered “long overdue” tax relief to Mainers. Thibodeau also noted that the plan did not raise the current sales tax rate of 5.5 percent. LePage’s plan raises it to 6.5 percent, while the Democrats have proposed 5.5 percent. The Democratic and Republican plans essentially make permanent a 0.5 percent sales tax increase that is due to expire June 30.

Democratic House Speaker Mark Eves acknowledged that the Republican plan marked a “path forward” for negotiations, but not before adding that the proposal had the hallmarks of trickle-down economics because it gives more benefits to high-income earners than those in the middle class.

Eves said Democrats were eager to see how the proposal is paid for.

“There’s nothing in there for property tax relief and that’s a big concern and priority for Democrats, to provide property tax relief,” he said. “We think it’s another giveaway to the wealthy and corporations. We understand the details of it, but we’re glad the Republicans came forward with a plan.”

Property tax relief would come in the form of the homestead exemption. It’s currently $10,000 for qualifying homeowners. Republicans have proposed keeping it the same, while Democrats want to double it. LePage had proposed doubling it for homeowners 65 and older, but eliminating it for everyone else.

Eves acknowledged that broadening the sales tax to new goods and services – an idea supported by LePage and Democrats – is likely off the table now that Republicans have rejected it.

The time left to broker a deal is diminishing. The statutory adjournment date for the Legislature is June 17, although it’s possible that lawmakers can craft a budget deal before then while avoiding a government shutdown.

Thibodeau and Eves both expressed confidence that a compromise was possible. While Republicans have rejected significant portions of the governor’s plan, Thibodeau said LePage should be credited for making tax reform a priority during his second term.

“I think at the end of the day, if we lower the income tax rate, I think that’s a victory for all Republicans,” he said. “Make no mistake, the governor’s the one who got this conversation started.”

Steve Mistler can be contacted at 791-6345 or at:

[email protected]

Twitter: @stevemistler


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