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Taxes, Revenue Sharing Spur Continued Debate on LePage's Budget

AUGUSTA, Maine — Gov. Paul LePage has succeeded in igniting significant public debate around his two-year budget, which aims to reduce the income tax while expanding and raising the sales tax.

Now its up to lawmakers in both parties to hammer out a tax plan that can win two-thirds support and pay the bills for the next two years. And two key committees are now weighing arguments from municipal leaders who object to another major provision of the governor's plan: the proposed elimination of revenue sharing.

LePage declined comment on the tax reform negotiations underway at the State House, and Sen. Earle McCormick, the GOP chair of the Taxation Committee, says there's little that he can say about it until a final recommendation expected shortly after April 1.

But fellow Republican Committee member Sen. Paul Davis of Sangerville says members of his party have found aspects of the governor's plan that they support, and others that they cannot, such as doubling the Homestead Exemption.

Davis says since he's over the age of 65, he would qualify for that added benefit, "but I've got two children who have children who some of them are going to college now, others will be going to college later on and it seems to me that I'm taking money away from them to benefit myself — and I've got a problem with that."

LePage's reform package would phase in reductions in income tax rates for all Mainers, eliminate taxes on pensions for retired service personnel and flatten the corporate income tax. But it would also raise the sales tax to 6.5 percent and extend to dozens of currently tax-exempt goods and services.

Maine Revenue Services this week concluded that the overall effect of the plan would be that low-income Mainers would keep a higher percentage of their paycheck, while wealthier residents would realize the greatest benefit. Democrats on the Taxation Committee, including Rep. Diane Russell of Portland, say that means Mainers with an income $40,000 a year would realize just $145 in tax reductions.

"The rich are going to get somewhere in the neighborhood of a $10,000-dollar tax break," Russell says. "That is wrong. That is something that everyone can agree is not appropriate."

Additionally, the governor's plan calls for reformulating how General Assistance funds are distributed to cities and towns, and would eliminate millions in municipal revenue sharing funds that local leaders say allow them to hold the line on property taxes. Bangor Mayor Nelson Durgin was among several members of the Maine Mayors Coalition who came to the State House to oppose the plan.

"State policies such as decreasing revenue sharing, decreases in General Assistance reimbursements and changes to the Homestead properties could drive up property tax rates and may discourage new investment in our communities," Durgin says.

He says lawmakers must reject tax policies that provide little or no relief to Maine's service center communities while expecting those same cities to absorb a disproportionate share of the burden of unfunded state mandates. But among those who support many of the governor's proposals is Matt Gagnon of the Maine Heritage Policy Center, who says he expects municipal leaders from both parties will lobby against the plan.

"Again you're entering territory that's sort of apolitical, and it's strange to see very odd bedfellows together on a number of these issues, but the Maine Heritage Policy Center has been very strongly in favor of getting rid of revenue sharing," Gagnon says.

On the other hand, Gagnon says the group is opposed to any increase in the sales tax. Republicans and Democrats on the Taxation and Appropriations committees will continue their quest to find middle ground in the tax reform debate over the next several weeks.