An exclusive interview with the House majority leader
UPDATE: AUGUSTA — The Maine Senate has joined the House of Representatives in giving preliminary approval to an overhaul of the state tax code.
The plan won majority backing in the House on Thursday, 84-59. Following a couple of hours of debate today, the Senate registered its support, 19-15. Under the plan, Maine’s 5-cent sales tax would be held steady but applied more broadly, while the top income tax rate would drop from 8.5 percent to 6.5 percent.
As out-of-state visitors pay more, Maine residents could save $55 million annually, according to tax department officials.
The 124th legislative session has been a challenging time with lawmakers working on key issues: a revised budget, a growth investment bond proposal, the future of Dirigo Health, and tax reform.
Tax reform has been talked about for decades. Most citizens agree that the state needs to collect taxes to support programs they care about. Over 80 percent of taxes go to education and health and human services. The question arises: is there a better way to collect the same amount of money while the individual’s tax burden is decreased?
The majority leader in the House, Rep. John Piotti, believes it is possible.
“Most impartial observers, for the last 30 years have said that Maine’s tax system is fundamentally out of whack. Despite repeated efforts, there has never been total success in making a change.
“This is the point where we can make fundamental change on how we collect revenues. Businesses are on the edge; people are living in dire straits. I think the opportunity to change how we collect revenue is there now.
“Tax reform, done right, can set the state up for a better recovery. If we position ourselves with a lower income tax rate and a slightly broader sales income tax base, we are going to be more competitive compared to other states. If there was ever a time when we should be poised for the future, now is it.”
Two years ago he began working on this goal, but revising the tax code wasn’t something Rep. Piotti set out to do when he became a lawmaker. He holds three degrees from Massachusetts Institute of Technology, in engineering, public policy, and management. He worked eleven years in economic development at Costal Enterprises and is now the executive director of the Maine Farmland Trust.
Former Speaker of the House Glenn Cummings identified Rep. Piotti as a negotiator who could bring people of opposite persuasions together, so he appointed Piotti to become chair of the Taxation Committee. Cummings had witnessed what he had accomplished on the state’s Katahdin Lake acquisition.
“It was very intense. I was chairing the agriculture conservation and forestry committee at that time. Most pundits would probably say it was dead on arrival at the committee. They thought it was impossible to bring the two sides together on this issue.
“When it became law, that was my proudest moment in the Legislature. We worked that bill incredibly hard. We had about a hundred hours on it.
“Often with policy issues, they line up on different sides and fight. But if you can take it to a different level and begin to understand why they are lining up on the sides, you can find common ground. We kept working it until we found that common ground. We found out what the underlining problems were and ultimately made it work.
“It was complicated. Local people had major concerns about not having access to the forest that they cared about. As part of the process to ensure that access, we had local people work with the Department of Conservation to think about a comprehensive plan for both recreational and conservation use.”
When Piotti was first tasked with tax reform, he took the same approach.
“We rolled up our sleeves. We had 43 work sessions on tax two years ago; that’s about 250 hours, which was unprecedented.
“We felt we needed to take extra time to really learn about the issue. First, we educated ourselves, so that we understood how our tax code works. Then we created ten underlying principles to keep us from getting off track by being trapped in an ideological dead end.
“Ultimately, eleven members of the committee supported the plan. Only one Republican and one Democrat didn’t.”
For some, the tax reform bill two years ago didn’t take everybody’s concerns into account. There were small-business owners who voiced worries that their businesses would suffer. And in the end, the bill failed in the Senate.
“It was a starting place based on facts and information.”
This time around Rep. Piotti is working hard to address all concerns.
“We have been talking to a lot of people inside and outside of this building on what to do. We had about a dozen meetings with business leaders and Chambers of Commerce. We’ve reached out to the general public with at least a dozen meetings.
“Tax reform is all about the manner in which we collect money that keeps services running. More of our revenues will come from non-residents and visitors to the state. That means Mainers will see a reduction in their tax burden.
“Based on projections when the bill was crafted, the burden on Maine people would be reduced by $75 million a year. That would be money in the local economy, in people’s pockets.
“When all is said and done, this will be a fairer tax system, with more money in your pocket, even if you have to pay some additional sales taxes in some areas. The reductions will be greater than that.”
The plan would reduce the top income tax rate from 8.5 percent to 6.5 percent and replace current income tax tiers with a household credit.
The sales tax would be expanded to some consumer services such as movie tickets, car repairs, dry cleaning, and pet boarding. The bill also calls for the meals-and-lodging tax to be increased from 7 percent to 8.5 percent, the tax on short-term car rentals to be increased from 10 percent to 15 percent, and the real estate transfer tax on homes that sell for more than $500,000 to be increased.
“The governor has been incredibly complementary. Democratic leadership meets with him once a week. He would love to see the income tax reduced. He is supportive in the way in which we are doing this and how we have reached out to engage business leaders. His concerns are the concerns, frankly, of all of us. We all question change like this.
“Raising meals and lodging taxes is a balance. We don’t want to raise it so high it hurts our local businesses. There is a tradeoff there. Every member who is a sponsor of the bill has raised these very same concerns that the governor raised.
“It doesn’t mean that Democratic leadership and the governor are a hundred percent in agreement on tax reform, but we are awfully close. I am convinced that we will get tax reform accomplished and be completely together when it’s done.”
Piotti said that by changing the tax code, state revenues will become more stable, while the tax burden on individuals will decrease.
“First and foremost, we will have a smarter code. The new code will have better incentives and disincentives. It will reward people who live and work here. It will be a code which will spur economic development, as well as being a code that will provide more stable state revenues. That is so critical.
“We had a panel of four economists testify at the hearing who were very supportive. Every one of them talked about the importance of stabilizing state revenues. When we have a dramatic dip in the economy like we are experiencing, a more stable revenue base would help.”
Rep. Piotti’s working experience shows he knows how to turn businesses around to stabilize them. His dedication to helping working farms in Maine is a prime example.
“There are a lot of misconceptions about agriculture in Maine; in the last ten years we’ve gained over 1,000 farms in the state. There is more land under production, about 90,000 more. Some farms are struggling, but farming is not dying.”
Some of agriculture growth can be directly attributed to the work Rep. Piotti accomplished when he worked for CEI, helping 600 working farms become viable.
“CEI used to have a range of agricultural programs in the 70s and 80s, but they backed away from it like everyone else in the 90s. In 1995, I asked CEI’s director, Ron Philips: If I could raise the money, would he be interested in returning to agriculture? He agreed and I got grants. Before we knew it, we had a million dollar a year program.
“For eleven years at CEI, I helped farms with business planning and finding markets. In 1995 it was a whole different world. The biggest challenge for Maine farmers at that time was finding new markets. Now people are interested in buying local food. Take apple farms; 25 years ago they were mostly wholesale operations; now they are more diversified. Many now grow a variety of products. Some have tours, weddings, hay rides, cross-country skiing. They have their own value-added products like cider, donuts, and pies. That’s all part of the transition farms went through in the last ten to twelve years.
“They have made a more direct link with the customer, instead of dealing with a middleman. Value-added products have really helped Maine’s farms.”
Piotti’s first attempt to create tax reform gave him a valuable experience. Now he is determined to succeed, as he has with saving farms. Agriculture is an area, like taxes, where he had no prior experience.
“Having grown up in a small community, I was interested in economic development at the community level. Back in the early 1990s I was co-chairing the comprehensive planning committee in my town of Unity with a dairy farmer. He said, “You know John, you’re doing all theses things to promote appropriate scale, economic development in rural areas, but you know nothing about farming.’ He was right. I had worked on forest products issues, aquaculture issues, small manufacturing issues, and lots of other things, but I’d never done anything on farming. He became my mentor.”
Now, John runs Maine Farmland Trust, which works with landowners, land trusts, farmland preservation groups, and municipalities to identify and preserve valuable agricultural land, and to keep farming viable..
“There are different reasons farms are having troubles, and we help in different ways. For instance, we help some find a way to increase their income, so they could buy down their debt.
“The biggest barrier is affordable farmland, for people who want to start farming or for existing farmers who want to secure land they now use, but do not own. Dairy farmers are a great example of that. Dairy farmers utilize about 700,000 acres of land in the state. Probably 150,000 of that is leased land, sometimes with only a handshake agreement. The land is critical to their success, but they have no control over it. Often they are elderly landowners, who when they die the land is sold without the dairy farmers even being notified.
“We help both existing farmers and young farmers who want to get started. Permanently preserving land makes it more affordable by removing its value for development.
“We work to keep farms viable.”
Now he is working to make our tax system more viable.