After months of debate over Governor LePage's proposed tax package, last week Democratic leaders came forward with a counterproposal they call "Our Better Deal for Maine." The move comes as the bipartisan Taxation Committee unanimously rejected the governor's proposed tax on land owned by large nonprofit organizations, new taxes on professional services, and the elimination of municipal revenue sharing. However, the committee was divided down partisan lines on whether to raise the sales tax and how much of a tax break to give the wealthy and corporations. The final tax package will likely fall somewhere between the LePage plan and the Democratic plan.

As the LePage plan tilts income tax cuts toward the wealthy and corporations, the Democrats' proposal offers a more progressive structure. The Democrats' plan would create five tax brackets and would set the tax rates at 5.75 percent for those earning $5,200 to $24,999 per year, 6.5 percent for households earning $25,000 to $49,999, 7.5 percent for those earning $50,000 to $174,999, and 7.95 percent for anyone earning over $150,000. The LePage plan features four tax brackets, dropping rates to 5.75 percent for those earning $9,700 to $49,000, 6.5 percent for households earning $50,000 to $174,999, and 5.75 for those earning over $175,000.

While the LePage plan would raise sales taxes from 5.5 percent to 6.5 percent, Democrats would keep the rate at 5.5 percent. The Democratic plan would accept the LePage proposal to expand the sales tax to over 200 goods and services that are not currently taxed (see list at end of this column). LePage would lower the tax on eating out to 6.5 percent, but Democrats would keep the tax at 8 percent. Both the LePage plan and the Democratic plan include a refundable sales tax fairness credit worth between $250 and $500 to offset sales tax increases for low-income people. Both plans would eliminate taxes on military pensions, but unlike the LePage plan, the Democrats would not exempt non-military pensions.

The Democratic plan would increase revenue sharing to municipalities from $62 million to $80 million to help pay for local services and keep down property taxes, while the governor proposes to eliminate funding for the program. The LePage plan would double the Homestead Exemption to $20,000 for individuals over 65 and eliminate it for everyone else. The Democratic plan would double it for everybody.

The LePage proposal would eliminate estate taxes for those earning over $2 million, while the Democrats aim to keep the tax. While LePage's plan would reduce corporate taxes, Democrats would leave corporate tax rates alone. The Democrats' proposal would also increase taxes on tobacco products and would attempt to recover tax revenue on corporate income held in overseas tax havens.

According to a new analysis by the nonpartisan Institute on Taxation and Economic Policy (ITEP) and the liberal-leaning Maine Center for Economic Policy (MECEP), the Democratic plan would, on average, deliver a tax cut for the bottom 95 percent of Maine taxpayers. ITEP/MECEP also estimate that the plan would reduce taxes more than the governor's plan, on average, for the bottom 80 percent of households. While the governor's plan provides a much larger tax cut (to the tune of $300 million), Maine Revenue Services estimates that over half of those benefits would go to the top 10 percent of earners.

The big debate may come down to how fairly the total tax burden will be distributed. The bottom 80 percent of Mainers already pay an average of 9.3 percent in state and local taxes, while the top 1 percent pay 7.5 percent, according to ITEP.

And the fate of future budgets also hangs in the balance. With the national economy improving, state revenues have stabilized, so it's no longer necessary to slash programs to balance the budget. But that doesn't mean Augusta politicans won't end up manufacturing a budget crisis using long-debunked arguments that tax cuts boost revenues. As written, the governor's plan would blow a $266 million hole in the budget by only covering two-thirds of the income tax cuts with other tax revenues. Maine already went down that road after the 2011 income tax cuts created a budget hole that had to be filled with sales tax increases.

And on a much larger scale, we can look to Kansas where Gov. Sam Brownback's "real live experiment" in the old trickle-down income tax cuts blew up the state's deficit and caused a bond rating downgrade. There's a lesson to be learned there, but more on that next week.
Domestic & Household Services - Interior home decorating, design, cleaning and organizing services. Power washing and cleaning of drains, gutters, chimneys, swimming pools, and hot tubs. Gardening, garden design, tree trimming and tree removal. Lawn care, snow removal and monitoring services. Insect and pest control services. Home electronic and audio-visual design and installation. Locksmithing and alarm and home security systems, including design, installation, servicing and repair. Private waste management* and remediation services. Domestic staffing services such as cooks, maids, butlers, nannies, gardeners and caretakers.

Installation, repair and maintenance services - All services involved in the installation, repair and maintenance of tangible personal property other than motor vehicles and aircraft.

Personal services - Hair*, nail, and tanning salons, massage parlors, spas, and body piercing and tattooing. Elective cosmetic medical procedures and electrolysis except medically necessary services. Event planning services, including weddings and commitment ceremonies; dating, escort and social introduction services; diet and nonmedical weight-reducing services; flower, balloon and other personal delivery services; travel arrangement and reservation services; psychic reading, tarot card reading, astrology, and palm reading services.

Personal property services - Dry cleaning, laundry and diaper services, not including self-service laundry services. Embroidery, monogramming, silk screening and clothing alterations; vehicle cleaning and detailing services; pressure cleaning and washing; pet services including exercising, sitting, training, grooming and boarding for nonmedical purposes; mounting and framing services; furniture and rug cleaning; meal and drink preparation; butchering; restoration services, including art restoration and conservation services and photographic restoration services; warehousing and storage, including rental of storage units and warehouse space, watercraft slip and mooring fees and vehicle parking fees; moving services; vehicle towing.

Prepared food - Candy and confections, including confectionery spreads; soft drinks and powdered and liquid drink mixes except powdered milk, infant formula, coffee and tea; sandwiches and salads; corn chips, potato chips and crisped vegetable or fruit chips, potato sticks, pork rinds, pretzels, crackers, popped popcorn, cheese sticks and cheese puffs and dips; fruit bars, granola bars, trail mix, breakfast bars, rice cakes, popcorn cakes, bread sticks and dried sugared fruit; nuts and seeds that have been processed or treated by salting, spicing, smoking, roasting or other means; desserts and bakery items, doughnuts, cookies, muffins, dessert breads, pastries, croissants, cakes, pies, ice cream cones, ice cream, ice milk, frozen confections, frozen yogurt, sherbet, ready-to-eat pudding and gelatins and dessert sauces; meat sticks, meat jerky and meat bars.

Professional services* - Legal services; accounting, tax preparation and bookkeeping services; advertising, public relations and related services; architectural, engineering and related services; graphic design services; photographic services, including studio photography services; financial planning services; surveying and mapping services; private investigation services; talent agency, artist agency and modeling agency services.

Soft drinks - Non-alcoholic beverages that contain natural or artificial sweeteners, not including beverages that contain milk or milk products, soy, rice or similar milk substitutes, or greater than 50% of vegetable or fruit juice by volume.

Recreation and amusement services - Theaters, movies, lectures, concerts, festivals, amusement parks, water parks, fairs, race tracks, festivals, carnivals, circuses, sports activities, stadiums, amphitheaters, museums,* planetariums, animal parks, petting zoos, aquariums, historical sites, and convention centers. Participation in or entry to sporting or recreational activities, including golf, skiing, tennis, miniature golf courses, arcades, billiard parlors, disc golf, laser tag, bowling, go-cart courses, paintball and fitness and exercise centers. Exhibition shows including auto, boat, camping, home, garden, trade, arts and crafts, animal, and antique shows. Scenic and sight-seeing excursions including aircraft, helicopter, balloon, blimp, watercraft, railroad, bus, trolley and wagon rides, whitewater rafting and guided recreation. Entertainment services including bands, orchestras, disc jockeys, comedians, clowns, jugglers, children's entertainers and ventriloquists. Lessons or training in dance, music, theater, arts and gymnastics, martial arts and other athletic pursuits.

*The bipartisan Taxation Committee unanimously voted to continue to exempt hair services, professional services, museum tickets and waste management from the sales tax last week. However, the Democratic plan simply adopts the governor's original proposal to broaden sales taxes and does not specifically make exemptions for these services.