Report #9: Tax Reform

About the Series

The Money in Politics Project is a series of twelve reports about the role and effect of money on Maine politics. The reports combine a review of publicly available campaign finance data with on-the-ground analysis of how money influences Maine's elections, government, and public policy. Maine Citizens for Clean Elections launched this project because money in politics is an issue of vital concern to the people of Maine, one that goes to the heart of our democratic system.
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How Tax Reform Opponents Use Systematic Campaign Giving to Bolster Their Side in this Perennial Fight.

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One of the most noteworthy bills in the 126th Legislature is LD 1496: An Act to Modernize and Simplify the Tax.

This bill seeks to lower the Maine income tax and broaden the sales tax base in order to stabilize Maine's revenue system and increase revenue from tourists and out-of-state interests. The bill also has provisions to decrease property taxes for some taxpayers, and necessities such as groceries and heating fuel would be subject to sales tax for the first time. The bill also repeals most income tax credits and deductions found in current Maine law. LD 1496 is noteworthy, but hardly novel. Over the last decade many reforms aiming to lower the income tax rate and broaden the sales tax base have been proposed, but none has succeeded. One bill even made it through the legislative gauntlet, only to be nullified by a people's veto in June, 2010.

The new bill has attracted a great deal of attention. Twenty five separate entities registered to lobby on LD 1496, employing nearly every prominent lobbyist in the State House.

On the day of the public hearing, the bill's sponsor, Senator Dick Woodbury, testified that lowering the income tax rate would stimulate economic growth. He said that including more transactions in the sales tax base would offset the loss from the lower income tax while also eliminating the large swings in state revenue during economic cycles. Tax credits for low income families and new property tax relief measures would ensure that the reformed system would not be regressive, according to Senator Woodbury.

The only other supportive testimony came from a handful of legislators, three municipal officials, the Maine Municipal Association, and three members of the public.

The opposition, however, was overwhelming – at least numerically. Thirty-six people testified against the bill, representing a wide range of industries, businesses, and associations.

Opponents of LD 1496 called attention to the individual industries they represented and the impact they feared, mostly from increased sales taxes or the elimination of tax exemptions. Hotels and inns objected to the three percent increase on the lodging tax. The Maine Bar Association protested the tax on legal fees. Some who testified were more guarded. The National Federation of Independent Businesses referred to the bill as "sweet and sour" tax reform, praising the effort to shift taxes to non-residents but opposing the new state spending that would be possible due to $320 million in net new revenue.

The exact financial impact on individual industries is difficult to gauge, and Senator Woodbury did not provide those details. But regardless of the dollar amount at stake, the opposition is well prepared for what looks like one more battle in a long war.

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