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By PAUL CARRIER
Blethen Maine Newspapers Thursday, June 14, 2007

On an 87-49 vote, the House endorsed a bill that would cut income and property taxes while expanding the sales tax.

In doing so, however, the House rejected an attempt to raise the sales tax from 5 to 6 percent to pay for even deeper income-tax cuts than those spelled out in the bill.

The bill approved by the House now goes to the Senate for initial votes there. But the outcome in the Senate is hard to predict because the Democratic majority in the House failed to endorse a Republican-supported constitutional amendment that would require two-thirds votes in the Legislature to raise income, sales or motor-vehicle taxes in the future.

If the Democratic majority in the Senate turns its back on the constitutional amendment, most Republicans there probably will follow the lead of their counterparts in the House and oppose the companion bill that would expand the sales tax to lower income taxes.

And if that happens, essentially reducing Republicans to bystanders, some Senate Democrats may get nervous about having their party being responsible for a heftier sales tax, leaving the fate of the entire reform package up in the air.

"It will be a squeaker" when the Senate takes up the issue today, predicted Senate Minority Leader Carol Weston, R-Montville.

The House on Wednesday initially approved a separate constitutional amendment that would allow cities and towns to scale back their participation in the so-called Homestead allowance, a state-sponsored property-tax break, because the state does not fully reimburse municipalities for the revenues they lose under the program.

But in voting for that amendment, the House refused to take up two other constitutional amendments, including the GOP-backed plan to make it harder for the Legislature to raise taxes. In the end, the Democratic majority in the House gave initial approval to the Homestead bill, with the support of only four Republicans.

The House vote for the income and sales tax bill followed a 90-minute debate whose tone ranged from soaring rhetoric to mundane discussions of the finer points of the proposed law.

The plan is "a bold, needed step" to cut taxes for the vast majority of Mainers, stabilize the sales tax by expanding its base and promote economic development, Democratic Rep. John Piotti of Unity, the House chairman of the Taxation Committee, told the House before the vote.

"Shame, shame, shame," countered Rep. Rep. James Campbell of Newfield, after he reminded the House that the expanded sales tax would apply to coffins and cremation urns, among many other items.

The House-backed plan that now goes to the Senate would replace the state's four income-tax rates with a flat rate of 6 percent, replace the existing income-tax deductions and exemptions with a tax credit and expand two existing property-tax breaks.

Supporters say that would reduce the tax burden in Maine by $142 million, with 89 percent of Maine families getting an average tax cut of $338. The rest would get an average tax increase of $413.

To pay for the tax cuts, the state would expand the 5 percent sales tax to dozens of goods and services, raise the tax on meals and lodging from 7 percent to 8 percent and increase the real-estate transfer tax, among other changes.

Only hours before the House took up the plan, supporters and opponents stepped up their lobbying campaigns.

About a dozen Democratic and Republican lawmakers, most of them members of the Taxation Committee, held a news conference at the State House to try to build support for the plan.

They said it would lower the state's income-tax burden from 7th place to 34th place nationally; force tourists to pick up more of the tax burden; and stabilize the state's tax system. Supporters also said the package would simplify Maine's income-tax system; set aside money for future tax breaks; and promote job growth.

Opponents of the plan released a letter to Gov. John Baldacci Wednesday from a business group called the No Tax Shift Coalition, whose 50-plus members include the Maine State Chamber of Commerce, the Portland Regional Chamber, the National Federation of Independent Business, the Maine Medical Association, the Maine Daily Newspaper Publishers Association and others.

The letter said the tax-reform package is "detrimental to Maine's business community and working families," adding that the proposal would not provide real tax reform because it would simply transfer the tax burden from some taxpayers to others.

Boosting a tax break for homes would shift much of the property-tax burden to the business sector, the letter said.

The fact that the House effectively rejected the GOP's push to make it harder for the Legislature to enact future tax hikes "complicates the prospects for the overall package," said David Farmer, Baldacci's spokesman. But Farmer and others agreed that it is too early to predict the outcome.

"There are many in the Democratic caucus on the Senate side who are hoping for a bipartisan tax-reform plan," said Senate Majority Leader Elizabeth Mitchell, D-Vassalboro. "The jury is still out."

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