Maine has one of the country’s highest income tax rates, which stifles growth and undermines competitiveness. But this may soon be a relic of the past, as the state House has approved a flat tax. The supposed revenue loss from lower income tax collections will be offset by broadening the base of the sales tax, which currently applies to only a narrow range of products.
Interestingly, Republicans in the statehouse are opposing the proposal, though it is not clear whether they are being partisans and reflexively opposing a Democratic plan or whether there are some genuinely objectionable features of what otherwise seems to be a pro-growth reform. This story in the (Brunswick, ME) Times Record, for instance, does not reveal whether the tax plan is designed to raise more money for government:
The House voted largely along party lines Wednesday to support a tax restructuring plan that expands the sales tax base to lower the income tax rate — a plan Republicans warned would cause a revolt back home when people realize how it affects their day-to-day purchases.
…[I]t gives tax relief to Mainers of all income-levels and stabilizes the tax system that currently relies on sales in just 24 categories. That limited base makes sales tax revenue very volatile and leaves the state short on cash when the economy slows. On the other hand, the state has the seventh highest income tax rate in the country and that discourages businesses from moving here and retirees from making the state their full-time home. The plan would rebalance that system. “This plan will provide a tremendous economic boost to the state of Maine,” [state Rep. John] Piotti said. “It will be a huge stimulus for people in state who want to expand and for people out of state looking to do business….”
The proposal would raise more than $230 million in sales-related revenue by expanding the 5 percent sales tax base to a long list of currently exempt services; raising the meals and lodging tax from 7 to 8 percent; increasing the real estate transfer tax on a sliding scale based on the property’s selling price; and doubling the excise tax on beer and wine. That money, in turn, would be used to lower the state’s graduated income tax to a flat tax of 6 percent.