Gov. Paul LePage says his proposal to eliminate taxes on pension income in the proposed supplemental budget is just another step toward his goal of eliminating the state personal income tax by the time he leaves office.
"I am not sure we can get there, but that is what I want to do," he said in an interview.
LePage said lowering the top income tax rate in last year's budget was a first step toward his long-term goal. The current top rate of 8.5% will be reduced to 7.95% next January.
"I want to get these people to stay here for 10 months a year, maybe just go down to Florida for two months a year," he said. "Now they are going down there for six months and a day to avoid our income tax."
This year Maine is projected to collect over $1.4 billion from personal income taxes, almost half of all expected state revenues.
Sen. Richard Woodbury, I-Yarmouth, serves on the taxation committee and is an economist. He said simply eliminating the personal income tax would be "irresponsible," but a significant reduction in tax rates would help the state's economy.
"Where I agree with the governor is that the income tax at the level that it is at now is a serious economic disincentive in this state," he said. "We do need to get it lower."
Woodbury said while some cuts in spending should be part of a lower rate, he believes "rebalancing" the tax mix could achieve a 4% top rate without slashing public services. He said the governor's proposal to eliminate taxes on pensions is not a good idea.
"Anytime you create a special tax program for one group of taxpayers over another, you end up having to charge higher taxes to everyone else," Woodbury said.
Rep. Seth Berry, D-Bowdoinham, said he had proposed eliminating the income tax on pensions instead of the estate tax cut that was part of the governor's tax reduction package last year. He said given the slow growth of the economy, he does not think there will be enough revenue growth to pay for that package, let alone the one being proposed this year.
Berry said he supports tax reform not just tax reduction.
Gov. Paul LePage's proposed tax changes drew mixed reviews at a joint public hearing of the Legislature's taxation and appropriations committees.
"I am opposed to all of the tax changes," said Albert DiMillo, a retired corporate tax director and certified public accountant from Portland. He focused much of his testimony on the proposal that would increase income tax exemptions for retirement income starting in 2014 to $10,000 and reach a total of $35,000 in 2019.
"The proposed tax changes are not good tax policy," DiMillo said. "Most retirees in Maine do not pay an excessive income tax; the vast majority of Maine retirees pay much more in property tax than income tax."
John Wakefield of the 15,000-member Maine Association of Retirees, a group of retirees who get pensions from the Maine Public Retirement System, said any tax relief will be welcome by its members. A former staff director of the appropriations committee, he was asked if he had any recommendations on how to pay for the annual cost, estimated at over $93 million.
"No disrespect to your question," he said, "but last session they cut the COLA cap (cost of living allowance) and suspended the COLA for three years. According to the Office of Fiscal and Program Review, that was $344 million in general fund money; I think most of our members think they have already given."
Garrett Martin, executive director of the Maine Center for Economic Policy, a progressive think tank, said the proposal is "fiscally irresponsible" and should be rejected. He said it could pose serious problems for future legislatures and governors.
"If we ask ourselves who are the older Mainers most in need of tax relief, more than likely it is not someone with a pension, it is someone who lacks the retirement security to stop working," he said.
The tax proposals also include a provision that would exempt income earned by National Guard members or active duty military while serving on active duty outside of Maine. For example, the measure would mean National Guard members sent by the governor to help repair hurricane damage in another state would not pay Maine income tax on that portion of their pay.
Legislation allowing the Maine State Lottery to sell tickets on the Internet drew strong opposition from the network of stores that currently get a commission from the state to sell the tickets.
Jerry Reed, director of the Maine Bureau of Lottery Operations, told members of the Legislature's Veterans and Legal Affairs Committee the lottery needs to bolster sales to the "Generation Y" segment of the population, 18-to 30-year-olds who embrace the Internet.
"While our lottery revenue generation is doing reasonably well, our consumer head count participation is flat to slightly down," he said.
The measure, which is a committee bill, would allow the state to engage in online lottery sales no sooner than September 2013. Reed sought the ability to adopt rules to implement the sale of tickets on the Internet.
Online gambling was long banned under an interpretation of federal law by the U.S. Department of Justice that was reversed in December.
Lawmakers on the committee said they have been "beat up" over the issue from local store owners concerned they will lose sales and commissions if Mainers can buy tickets online. At a public hearing, opposition from groups representing retailers and Hollywood Casino was heard.
"The slow move to games that provide instant gratification through the Internet will have a significant impact on bricks and mortar casinos like Hollywood Casino as well as retailers via the lottery," said Cheryl Timberlake, lobbyist for Penn National Gaming, owner of the Hollywood Casino in Bangor. She suggested that casinos and current lottery retailers should operate Internet gambling and require users to establish accounts and prove they are of age to gamble.
Shelly Doak, executive director of the Maine Grocers Association, said there are 400 grocers that sell lottery tickets through terminals and scratch tickets.
"This proposal will place the state in direct competition with the 1,300 Maine-owned and operated Main Street businesses — the grocery stores, the convenience stores and the grocery stores that are now in partnership with the state," she said.
The Legislature will consider the issue in the closing weeks of the session.