AUGUSTA — A bipartisan plan unveiled Wednesday that would overhaul Maine’s tax structure met with a lukewarm response from top politicians, as well as criticism from interest groups who stand to win or lose from the proposed income and sales tax changes.

The plan by the so-called “Gang of 11,” introduced at a State House news conference, would impose a flat income tax rate of 4 percent, replacing a scale that now has a top rate of 7.95 percent. It would also increase the sales tax from 5 percent to 6 percent and eliminate most of the 87 current sales tax exemptions — except for those related to health care and education.

That would yield an estimated $700 million in additional revenue, and after tax cuts, bring in $160 million more in revenue than proposed in Gov. Paul LePage’s current budget, supporters say.

“This is huge,” said Rep. L. Gary Knight, a Republican from Livermore Falls who will be the chief sponsor of the bill that contains the plan. “Polarization and gridlock have hampered Washington, but not us and not this time.”

The response from leading lawmakers was tepid, however.

Senate President Justin Alfond, D-Portland, said he hasn’t seen the plan.

House Minority Leader Kenneth Fredette, R-Newport, said the plan was an amplified version of a tax reform proposal that voters rejected in 2010, and it won’t find widespread support in his caucus.

Richard Rosen, director of Gov. Paul LePage’s policy office, said LePage is “withholding judgment” on the plan until he sees more concrete details.

The lawmakers who crafted the proposal come from across the political spectrum and are led by Sen. Dick Woodbury, a Yarmouth independent and Harvard University-trained economist.

Republicans involved include Assistant Senate Majority Leader Roger Katz, of Augusta, who said he expected interest groups will be out in force to pick away at the plan.

“If this kind of reform were easy, it would have happened years ago,” Katz said.

Reactions to the plan started to emerge from certain groups. The conservative National Federation of Independent Business called it “encouraging but incomplete.” The group praised the income tax cuts but said the sales tax increase — from 5 percent to 6 percent — would offset the positive effect.
Liberals will be rankled by the proposal’s corporate income-tax cut — from nearly 9 percent to 7.5 percent — and elimination of the state estate tax.

Senate Majority Leader Seth Goodall, D-Richmond, said he didn’t particularly like those two parts of the plan. Fredette called the increase in sales tax regressive, hitting the poor hardest.

However, sponsors said the proposal would reduce Maine’s reliance on property taxes significantly.

According to the Tax Foundation, property taxes made up nearly 41 percent of Maine’s state and local tax revenue in 2010, up from slightly more than 36 percent in 2008.

“You’ve got to look at everything as an entire picture,” Goodall said. “This sets Maine on a path for greater stability for our budget process. It also provides relief for property tax, which is long overdue.”

One major provision would increase Maine’s homestead property-tax exemption from $10,000 to $50,000, meaning that amount would be shielded from property-tax payment. The group said a majority of resident taxpayers will see property tax reductions of more than $500.

“If that’s not an economic stimulus package for our state, I don’t know what is,” Katz said.

Fredette, the Republican House leader, said the plan is unlikely to win much support from his party. He described the proposal as a more ambitious version of tax reform rejected in 2010.

“We are generally, I think, opposed to the idea of taxing everything including food, raising the lodging tax and the meals tax in a bill that, frankly, raises revenues for the state,” he said. “We’ll let this thing play itself out, but as a Republican leader, it’s not something we’d generally look favorably on.”

The previous tax reform effort was passed by the Legislature in 2009. A year later it was defeated at referendum, following a campaign led by interest groups and supported by Republicans.

The proposal rejected in 2010 called for broadening the sales tax, but it didn’t raise the rate. The meals-and-lodging tax rate would have moved from 7 percent to 8.5 percent. The current plan would raise the meals tax to 8 percent and increase the lodging tax to 10 percent.

The old proposal didn’t tax groceries, and it would have established a flat, 6.5 percent income-tax rate, higher than the 4 percent proposed in the new plan.

Rep. Lance Harvell, R-Farmington, a Gang of 11 member, said he supports the plan because it creates a simpler tax code that doesn’t exempt anyone, as the present code does.

“That has led to a convoluted tax system that no one can understand and Joe Six-Pack certainly doesn’t have a shot at,” Harvell said.

Curtis Picard, executive director of the Retail Association of Maine, said his members would be concerned about when sales taxes changes would go into effect, if the proposal passed. If changes are made by July 1, the beginning of the next fiscal year, that could place a large burden on small businesses to change computer systems quickly, he said.

Picard said he was also troubled by the proposal’s similarity to the 2010 plan, and he wondered whether the Legislature could protect it from special interests who would seek sales tax exemptions.

“Are they really going to have Girl Scouts collect sales tax on cookie sales? Are you really going to tax home heating oil? That’s in there,” he said. “These groups come in and say, ‘Here’s why we’re exempted,’ and some have legitimate reasons.”

Michael Shepherd — 370-7652
mshepherd@mainetoday.com
Twitter: @mikeshepherdme