House Speaker Glenn Cummings has proposed a plan that would raise the meals and lodging tax to lower the income tax and expand the state’s existing property tax and rent refund program – a proposal restaurant and inn owners are ready to fight.
Under the speaker’s plan, the meals tax would go from 7 to 9 percent and the lodging tax would go from 7 to 10 percent, raising an estimated $60 million.
“Increasing the taxes most often paid by tourists creates the best opportunity to provide revenue neutral tax relief for Maine businesses and workers,” Cummings said.
Cummings also is proposing a constitutional amendment that would cap property tax increases for Maine residents over 65, who earn no more than $102,000 a year. The cap would limit the increase to the rate of inflation and be optional for cities and towns, since they would have to absorb the costs, most likely by shifting it onto other taxpayers.
Leaders in the state’s tourism industry said Cummings’s plan to raise the meals and lodging tax not only would hurt a business that already generates $531 million in taxes a year for the state, but it also would hit Maine residents.
“They can talk all day long about the exportability of this thing. It’s going to come out of the disposable income of Maine people,” said Dick Grotton, head of the Maine Restaurant Association.
Industry numbers show 70 percent of the meals eaten out are eaten by Mainers. And, while tourists pay more of the lodging tax, at least in high season, the rate hikes will make Maine less competitive, Grotton said.
“They’re talking about making Maine the highest taxed state in New England for yet another tax – meals and lodging. In spite of the good intentions, it defies logic,” Grotton said.
Greg Dugal, head of the Maine Innkeepers Association, agreed saying the tax hike will put the state at a disadvantage with its major competitors – New Hampshire and Massachusetts.
“It’s a big stretch to take an industry that’s not doing very well and make it more expensive to come here than it is to go to Cape Cod,” Dugal said. “They’re killing the golden goose.”
Tax day
Cummings was one of a non-stop stream of legislators, lobbyists and advocates who appeared before the Taxation Committee Monday in what was dubbed “open mike” day to hear people’s thoughts on tax reform. The discussion was scheduled to go on through Tuesday afternoon.
The idea was to let people just talk about what they hope the Legislature can accomplish before the committee tackles the hundreds of bills on its docket. Ground rules were fairly simple. Proposals had to reduce the overall tax burden; be revenue neutral; fair to everyone; simple to understand; and, lead to a stronger Maine economy.
As speaker of the house, Cummings used his office to promote his tax plan at a late-morning press conference after he gave his testimony.
In addition to his tax cap for seniors, Cummings wants to use the revenue from the meals and lodging tax hike to lower the state’s top income tax rate of 8.5 percent to 7.8 percent for 2007. That high rate currently kicks in at a low level – $18,250 of taxable income for individuals. He also wants to raise the earned income tax credit to $4,000 for single filers and $8,000 for married ones, which would remove an estimated 50,000 low-income Mainers from the tax rolls.
On the existing tax and rent rebate program, known as the circuit breaker, Cummings wants to expand eligibility and increase the maximum rebate to $3,000. Right now, Maine property owners and renters are eligible for up to $2,000 in rebates if their household incomes are $77,000 for individuals and $102,000 for families, and they spend more than 4 percent of that income on property taxes or 20 percent on rent.
Sen. Libby Mitchell, the majority leader, said the circuit-breaker program needs to be changed because people are not taking advantage of it. For starters, she said, it needs a new name.
“It sounds like welfare,” she said, and that has turned people off.
There also have been suggestions to let people use their income tax forms to apply for the rebate like they do for regular refunds.
Other proposals included expanding the sales tax to include things like services that are now exempt; hiking the sales tax rate; and letting cities and towns adopt their own local option sales tax, as long as the receipts help reduce the property tax.
Republican Sen. Dana Dow of Lincoln and Knox counties proposed a 1 percent increase in the sales tax – from 5 to 6 percent, with “every nickel” going to property tax relief. He also would support expanding the sales tax base. And, over 10 years, he wants to see the top income tax rate reduced from 8.5 percent to 6.5 percent.
Spending caps
Spending limitations also were proposed – like requiring that when three state workers retire, they be replaced with two – as well as making it more difficult to exceed existing caps.
Sen. Richard Rosen, the assistant minority leader, said he would like voters to decide by ballot any local budgets that exceed the limits put in place last session under the governor’s tax reform bill, known as LD1.
For county and municipal governments that limit is a cap on new spending tied to resident income and population growth. At the school district level that limit is supposed to be what’s prescribed under the school funding model known as essential programs and services, which allocates money based on enrollment.
“What I heard from people on the campaign trail is ‘we want an opportunity to weigh in and we want that opportunity to weigh in at the ballot booth,'” Rosen said.
A representative from the Maine State Chamber of Commerce, Steve Clarkin, said his organization couldn’t support raising existing taxes to lower others unless there were “meaningful spending limits.”
“We’re not encouraged by what we’ve seen so far,” Clarkin, said, referring to proposals to raise the meals and lodging tax, enact local option sales taxes or expand or raise the existing 5 percent sales tax statewide.
Clarkin’s testimony raised the ire of committee members from both sides of the aisle, with Republicans criticizing the chamber for not supporting the Taxpayer Bill of Rights and Democrats saying the organization was not now offering constructive suggestions.
Rep. Anne Rand, D-Portland, was most pointed, asking Clarkin if the chamber’s business members would be willing to raise wages so taxes wouldn’t consume such a high portion of workers’ incomes. She also wanted to know if they would cut the tax benefits businesses now get through the Pine Tree Zones and tax increment financing to help balance the budget.
Rep. Herb Clark, D-Millinocket, apologized on behalf of his committee for the criticism, saying, “I came hear to learn and listen.” Others said they didn’t mean to come off so strong. Rand, however, said she wasn’t sorry.
“I did mean to be a little confrontational,” Rand said. “I’m not going to apologize for what I said because I think it had to be said.”
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