Legislative committees in Augusta are continuing to hold hearings on Gov. Paul LePage’s controversial budget plan that once again aims to slash income taxes for the wealthy and cut benefits for low-income families. 

Due to the recent bout of snowstorms, the Appropriations Committee is not expected to wrap up public hearings until March 10. But hearings on the most contentious pieces — the tax cuts and the public assistance and MaineCare cuts — will be finished by the end of this week. After that, Democrats and Republicans will begin the tough work of budget negotiations, with the goal of finishing up by June. 

On February 10, business groups squared off against teachers and progressive activists over the governor’s plan to effectively repeal a recently passed citizens’ referendum that levies a 3-percent surtax on household earnings over $200,000 in order to meet a voter-mandated law requiring the state to fund 55 percent of the cost of education. The governor’s plan would gradually reduce all income tax rates to a flat 2.75 percent and then tack on a 3-percent tax to technically meet the Question 2 mandate. The plan would also reduce the top corporate income tax rate and eliminate taxes on inheritances worth over $5.45 million.

The Maine Chamber of Commerce urged legislators to repeal the new 3-percent surtax, arguing that the referendum vote passed by a “slim margin” and therefore “the business community overall do not believe this constitutes a mandate from the people to increase taxes.” Representatives from the South Portland-based tech company WEX and Westbrook-based IDEXX Laboratories supported the repeal on grounds that taxes on higher-income households will make it more difficult to recruit skilled professionals from other states. Greg Wiessner, vice president and corporate securities counsel at WEX Inc., said salaries at his company can start at six figures.

“We compete nationally and internationally for this talent against companies that you know by name, and whose products you use, such as VISA and MasterCard,” said Wiessner. “For those with dual-income families, this surcharge will impact them, if not immediately, then by midcareer stages. This tax not only hinders our ability to recruit talent to Maine, it will also give our competition an edge in recruiting our associates away from Maine. As for recruiting, you want to lead all states with growth, not tax rates. This tax rate sends a message that Maine will punish prosperity.” 

However, a number of teachers and education advocates showed up to testify in support of the 3-percent surtax. C.J. Betit, director of collective bargaining and research for the Maine Education Association (MEA), said that the governor’s plan would eliminate nearly $360 million that would otherwise be used by municipalities to either fund schools or provide property tax relief.

“To be clear, if this funding flowed to local school districts as required by Question 2, communities throughout the state would get to decide locally if they want to use the money directly to reduce property taxes or put more money into needed resources for students,” wrote Betit. “This would have a widespread impact on the ability of communities to broadly relieve the property tax burden. This budget proposal benefits a select few, who have already disproportionately benefited from previous tax cuts, at the expense of the middle class and working property tax payers, who pay a disproportionate amount of their income in property taxes.”

Longtime tax analyst Albert DiMillo, a retired accountant and tax director for Bath Iron Works, said the governor’s proposal would result in an average property tax increase of $320, a figure roughly equivalent to an estimate by the Maine Center for Economic Policy, and result in a “windfall for the top 1 percent” of income earners. DiMillo pointed out that tax cuts that the Legislature made last session were partially paid for by eliminating itemized deductions for high-income taxpayers and the majority of deductions for middle-class homeowners. He said the “biggest losers” in the last budget will be higher-income elderly who have high medical expenses, and those who give generously to charity. He added that the estate tax repeal would mostly only benefit out-of-state heirs. 

“Based in part on the false sense of massive tax decreases for all taxpayers with income over $200,000, the voters approved the 3-percent tax surcharge,” DiMillo said. “The Governor’s plan is to eliminate the entire 3-percent surcharge in 2017. The better plan would be to return the top income tax rate to 8.5 percent for taxable income over $200,000 and to eliminate the phase-out of itemized deductions. Many small business owners with substantial itemized deductions would pay about the same income tax with a top rate of 8.5 percent and itemized deduction allowed as they would with a [current] top rate of 7.15 percent and no itemized deductions.”

DiMillo also chastised lawmakers for making the tax changes in last session’s budget during closed-door meetings without giving the proposals a proper public hearing. 

Meanwhile, Gov. LePage said he is “very pessimistic” that the Legislature would repeal the 3-percent surcharge. 

“There is no backbone,” LePage complained in a radio appearance last week. “We have gone from a legislative form of government, representative government, to a referendum government.”