AUGUSTA — Mainers with the highest incomes would save thousands of dollars a year under the latest income tax cut proposed by Gov. Paul LePage, while those earning a little above the state’s new minimum wage of $9 an hour would see less than $10 a year in savings.

The savings would be especially dramatic for those earning more than $200,000 a year and facing a new 3 percent surcharge approved by voters in November.

LePage, in his final two-year budget proposal, is seeking to secure his legacy as a tax-cutting governor by urging the Legislature to reduce Maine’s income tax rates, simplify the state’s tax code and move toward a flat tax on income.

If successful, it would be the third time in six years that LePage wins an income tax reduction. Since taking office in 2011, the governor has steadily chipped away at Maine’s top marginal tax rate, bringing it down from 8.15 percent to 7.15 percent. According LePage’s staff, his 2011 reform saved taxpayers about $150 million and is the single largest income tax cut in state history.

If his new plan is adopted, according to the administration’s data, Mainers’ overall income tax burden will be $600 million a year less than it was when he was first elected in 2010, and the tax burden would be reduced across the entire income spectrum. Previous rounds of cuts effectively eliminated income tax liability for more than 140,000 Maine families or individuals earning less than $20,000, according to the Department of Administrative and Financial Services.

At the same time, the highest-earning 10 percent of Maine families would see average tax savings of $4,288 a year and as a group would save more than the other 90 percent of Maine families combined, the administration’s data show.

At the heart of LePage’s latest plan is a proposal to get rid of multiple tax rates that rise as incomes increase, and shift the state to a 5.75 percent income tax rate for all income levels. The flat tax would bring the most savings to the highest earners – both in raw dollars and as a percentage of income.

A different piece of the plan would reduce the tax burden on retirees by making the first $35,000 in retirement income tax-exempt. Right now, the first $10,000 is exempt.

To help pay for the reduction in income tax revenue to the state, the governor also would broaden the state’s sales tax to more goods and services, such as ski lift tickets, snow removal services and haircuts. LePage also wants to raise the hotel and lodging tax from 9 percent to 10 percent to capture more revenue from people visiting the state.

MAINE WOULD BE 9TH TO ADOPT FLAT TAX

LePage has said his new budget proposal is meant, in part, to undo a 3 percent surcharge imposed on household incomes over $200,000. It effectively raised the state’s highest income tax rate from 7.15 percent to 10.15 percent. Maine voters approved the surcharge last November as a means of helping to increase public school funding.

To LePage and many Republicans in the Legislature, the new surcharge is misguided and a threat to the economy. They say it will drive away those with professional occupations such as doctors and engineers while penalizing the state’s small businesses. About 3 percent of Maine’s households – 16,600 – earn more than $200,000 a year, according to 2015 U.S. Census data.

LePage’s flat tax plan, in effect, would erase the impact of the surcharge on high earners, and would also provide a significant tax reduction from their current tax burden.

Under LePage’s proposal, an individual with $500,000 of taxable income would save an estimated $15,650 a year, or 3 percent of taxable income, compared with what the same taxpayer will owe with the new 3 percent surcharge added in. The vast majority of Mainers would save less than 1 percent of their incomes by shifting to the proposed flat tax.

If the Legislature goes along with the shift to a single tax rate that applies to all income levels, Maine would become only the ninth state to adopt a flat tax. Seven states have no income taxes at all, while two states, New Hampshire and Tennessee, tax only income earned from interest or dividends, according to a report by the conservative-leaning Tax Foundation.

LePage’s ultimate goal would be to eliminate entirely the state’s income tax. He said last week that if he did not have to deal with the Legislature, he would eliminate the income tax and bump Maine’s general sales tax rate from its current 5.5 percent to about 7 percent – what LePage described as a “complete consumption tax.”

However, eliminating the income tax entirely would mean either steep spending cuts or a doubling of current sales taxes, or some combination of the two. To make up for the estimated $1.5 billion the state will collect from its individual income tax in 2018, the state’s general sales tax rate would have to go up to 11 percent, while its 9 percent tax on hotel and motel lodging would go to 18 percent and the sales tax on restaurant meals would also have to double from 8 percent to 16 percent.

BROADENING SALES TAX A POLARIZING MOVE

The income tax reform is just one of the political challenges built into the plan.

Maine lawmakers in the past have resisted efforts to apply the sales tax to everyday services such as haircuts or car repairs. They have also been reluctant to apply the tax to entertainment and recreation services, such as greens fees for golf courses, or ski lift and movie tickets.

LePage said other states that cater to tourists have higher lodging taxes and, through talking with their governors, he has learned that increasing lodging taxes didn’t seem to reduce tourism visits. At 10 percent, Maine’s lodging tax would be 1 percent higher than neighboring New Hampshire’s lodging tax and the third highest in the U.S., according to a 2016 report by the National Conference of State Legislatures.

New Hampshire has no sales tax and does not tax spending on entertainment or recreation. Under LePage’s plan, Maine would join Vermont in taxing recreation and entertainment. Vermont has been applying the state’s sales tax to ski lift tickets since 1969, according to a spokeswoman with Ski Vermont, an industry association in the Green Mountain State.

An analysis released Friday by the Maine Center for Economic Policy, a left-leaning think tank, said the overall impact of all of the proposed income and sales tax reforms would mean higher taxes for 80 percent of Maine families. Families earning less than $92,000 a year would see average tax increases of $85 a year, while the top 1 percent of earners making more than $384,000 would see an average tax cut of $22,665 a year, it said.

The Maine Department of Administrative and Financial Services is compiling its own analysis of how the overall reform plan would affect different taxpayers, and it plans to release the data next week.

Democrats, including those who have supported past efforts to push more of the expense of government onto the sales tax, say they don’t like LePage’s latest offer.

Sen. Nate Libby, D-Lewiston, was part of a so-called “Gang of 11” of bipartisan lawmakers who pushed in 2013 for an increase and a broadening of the sales tax as a way to help chop state income taxes and also provide property tax cuts. However, Libby said LePage’s latest proposal mostly benefits the wealthy.

“We were trying to get most of the tax relief to the bottom 90 percent of Maine income earners,” said Libby, now the Senate’s assistant minority leader. “I think what the governor is proposing is a tax break plan for the top 10 percent of earners.”

Others who worked on the Gang of 11 are more supportive.

Former state Sen. Dick Woodbury, an independent from Yarmouth and an economist by profession, said he likes the underlying concept of LePage’s plan, which is to basically put more of the costs of Maine government on tourists in the form of a sales tax that reaches more purchases and expands beyond material items to include services.

“I have always thought a tax reform that broadens the base of the sales tax is a good idea,” Woodbury said. “It just better reflects what a modern economy looks like.”

Woodbury said he also likes the idea of broadening the sales tax because Maine has the advantage of hosting a large number of visitors from other places who pay taxes while they are here. And relying on a state income tax makes less sense as people have become mobile enough to go to another state to avoid a state income tax or get a lower rate.

And, he said, criticism of LePage for only working to lower taxes for the wealthy is not based on facts because previous reforms pushed by LePage allowed lower-income taxpayers to keep more of their earnings by increasing the amount of income a Maine resident can earn that is tax-free. “That really helped a fair number of people in that it made more of their income exempt,” Woodbury said.

PAST IS PROLOGUE, LAWMAKER SAYS

Lawmakers on the Legislature’s Taxation Committee start meeting Jan. 23 to discuss the tax reforms, and they had mixed reactions to LePage’s tax proposals last week. The committee will have to vote to recommend or oppose LePage’s tax package, although it can decide to modify the plan with its own amendments.

Sen. Dana Dow, R-Waldoboro, said he likes the idea of continuing to lower Maine’s overall income tax rate, especially to minimize the impact of the new 3 percent surcharge on high earners.

“In the last six years, Maine has made tremendous progress in lowering the tax burden,” Dow said. “But now we have taken a giant step backwards. We need to reduce the income tax rate to encourage businesses to grow, hire more people and have the ability to invest in infrastructure.”

Dow, the Senate chairman of the committee, said that without further examination he couldn’t say whether LePage is right to want to expand or even increase the sales tax as a way to offset an income tax cut. “I would have to look it over, but historically, I’ve been a fan of taxes on consumption rather than income,” Dow said.

The House chairman of the committee, Rep. Ryan Tipping, D-Orono, said LePage’s proposals will all be given fair consideration by Democrats, but that much of what LePage was offering had been rejected in the past. He said he fears that the plan would force communities to raise property taxes to make up for reductions in state revenue.

“I’m concerned this is another attempt to simply shift taxes from the state to the local level, cutting income taxes for the wealthy while raising property taxes for average people,” Tipping said. “I cannot support policies that shortchange hardworking middle-class families and our local schools, especially when many of these changes have been rejected in the past by both parties.”

VOTE ON SURCHARGE ‘WAS A MANDATE’

Sen. Justin Chenette, D-Saco, the ranking Senate Democrat on the Taxation Committee, said he doesn’t see a lot to support in his initial review of the governor’s tax reforms. Chenette and other Democrats disagree with the argument that voters who approved the surcharge on incomes over $200,000 only wanted more money for schools, regardless of who pays for it. He said voters clearly wanted Maine’s top wage earners to put a larger share toward education funding.

“The voters went to the ballot box and said, overwhelmingly, the top income earners of the state should shoulder a little bit more burden to have quality education,” Chenette said. “To me that was a mandate.”

Chenette said he also doesn’t believe LePage should propose a flat tax that would not be fully phased in until after he leaves office. “The next person that comes around could change that, so to me there is no flat tax proposal in this budget,” Chenette said.

And, he said, the flat tax just doesn’t seem fair. “Why should somebody that’s the CEO of a company have to pay the same tax rate as a janitor? I think that’s horrible.”

He did say that he believes Democrats and Republicans would likely agree with LePage’s proposal to increase the tax exemption for retirement income. But, he said he won’t support LePage’s effort to eliminate Maine’s estate tax.

“That’s not one of my priorities, much like I’m not looking to make sure the top 1 percent of income earners receive a tax break,” he said. “I’m looking to make sure that the people back home in my community, like middle-class families, seniors on fixed incomes – we have to give them a tax break.”