Corporations in Maine benefit from our educated workforce, our public roads and other infrastructure, and our clean air and water — not to mention our reputation for hard work and high-quality goods and services.
In exchange, they pay taxes to support the public investments that provide those benefits and help all families and businesses do well.
But over the past several years, corporations in Maine have seen their taxes cut at the state and federal level. In 2018, Maine cut the corporate income tax by raising the threshold for the top tax rate on corporate profits from $250,000 to $3.5 million. Many of the same corporations also enjoyed a massive windfall from the 2017 Trump Tax Cuts, which slashed the top federal corporate tax rate from 35 percent to 21 percent.
While large, profitable corporations had their profits padded by tax cuts, Maine’s schools and communities have gone without the resources they need. Lawmakers in Augusta have an opportunity this year to take back wasteful tax cuts for large, profitable corporations, and put that money back to work for Maine’s communities.
LD 501 would improve tax fairness, raise much-needed revenue
The Legislature’s Taxation Committee recently held a public hearing on LD 501, which would raise the tax rate on corporate profits from 8.93 percent to 12.4 percent. The higher tax rate would apply only to profits over $3.5 million.
This change would raise $78 million in revenue each year, according to an estimate by the Institute on Taxation and Economic Policy.
Corporate tax cuts don’t trickle down
When it comes to state corporate tax rates, the data is clear: Low corporate tax rates benefit wealthy households but have no effect on workers’ wages.
An assessment of state corporate tax changes between 1980 and 2010 showed no relationship between corporate tax rates and median wage growth. But a comparison of income growth for the top 1 percent over the same time showed corporate tax cuts coincided with an increase in income gains for the wealthiest households.1
Most small, Maine-made businesses do not pay the Corporate Income Tax
The corporate income tax is assessed on the profits of businesses that are organized as C-corporations, which represent a small share of businesses in Maine. Nationally, C-corporations make up only 5 percent of businesses. Maine’s business makeup is likely similar.
Corporations pay state income tax on sales based in Maine, regardless of where those corporations are headquartered. Those based outside the state — such as online retailers, big box stores, and supermarket chains — make up a large portion of the Maine corporate tax base. These businesses pay Maine corporate income taxes on a percentage of total profits, based on their sales in the state.
Given the presence of many of the world’s largest corporations in Maine, and the ability of others to sell directly to Mainers online, much of Maine’s corporate income tax comes form these mega-corporations.
Firms such as Amazon, Walmart, Microsoft, Apple, and big food producers have seen their profits soar even as working families have suffered hardship during the pandemic. Some of those companies even laid off workers while their profits grew. The Washington Post reported in December 2020 that 45 of the 50 biggest U.S. companies had not only turned a profit since March, but that a majority of those firms cut staff and gave the bulk of profits to shareholders.2
Conclusion
LD 501 asks highly profitable corporations, those that have done well even through a global pandemic and economic crisis, to pay a little more to help Maine rebuild our local communities and invest in the families that have been hurt the most. Lawmakers should enact the bill.
Notes:
[1] Josh Bivens. “Real world data continues to show no link between corporate cuts and wage increases.” Economic Policy Institute. November 3, 2017. https://www.epi.org/blog/real-world-data-continues-to-show-no-link-between-corporate-cuts-and-wage-increases/
[2] Douglas MacMillan, Peter Whoriskey and Jonathan O’Connell. “America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work.” The Washington Post. December 16, 2020. https://www.washingtonpost.com/graphics/2020/business/50-biggest-companies-coronavirus-layoffs/
