The wealthiest households in Maine have benefitted greatly from recent state and federal tax cuts. The top 1 percent receive over $50,000 a year in tax cuts on average from recent state tax cuts and the 2017 Trump tax cuts — even as Maine’s schools, communities, and other vital public services have fallen behind because they lacked the resources they need.
Tax cuts that primarily benefit the wealthiest have left Maine with a tax code that asks more of middle-income families than those at the top. And the choice to cut taxes has left Maine with fewer resources to invest in the things that create strong communities and increase opportunity and prosperity for all Mainers.
This year, the Maine Legislature has a chance to reverse course after years of harmful, unnecessary tax cuts that have exacerbated inequality to the benefit of those at the top to the detriment of working families and communities.
Reps. Ben Collings, Thom Harnett, Grayson Lookner and Laurie Osher have each proposed bills to recoup some of the revenue lost to tax cuts so those funds can be redirected back into Maine’s communities:
- LDs 1136 (sponsored by Rep. Harnett) and 1443 (Rep. Collings) would affect only the top 4 percent of households, increasing taxes on taxable income above $100,000 for individuals and $200,000 for married filers and raising between $179 million and $194 million in new revenue annually.
- LDs 495 (Osher) and 1500 (Rep. Lookner) would each affect the top 12 percent of households, raising taxes on taxable income above $51,700 for individuals and $103,400 for married filers and raising roughly $300 million in new revenue annually.
Note: See below for tables with more detailed information about each bill.
Any of these bills would raise enough revenue to fully fund our public schools for the first time since Maine voters established the 55 percent EPS funding requirement, fully fund Municipal Revenue Sharing for the first time in more than a decade, and still have some revenues left over to put toward other pressing needs.1
Maine needs more revenue to invest in its people and places.
The pre-pandemic status quo left many communities without the investments they needed to succeed and left them more vulnerable when the pandemic hit. Our recovery will not be complete until our tax code provides a sustained pathway to economic prosperity for all working families and children.
Basic public spending such as those build foundations for strong communities in our state. They are crucial to creating opportunities for all Maine families, particularly those with low incomes. But Maine’s current tax code has proven inadequate to fully fund these basic investments, in large parts because of decisions to enact tax cuts that put these investments out of reach. After years of tax cuts, Maine’s income tax code today raises roughly $430 million less per year compared to 2010 tax law. The Legislature rejected another $150 million in annual income tax revenues in 2017, when it repealed the voter-approved surcharge on high incomes designed to fund education.
These choices about tax policy have led to years of underinvestment. In the last 10 years, Maine schools have lost out on $2.54 billion, and communities have lost $707 million in revenue sharing for local services.2 Even in 2019, a time of record economic expansion for the country, Maine still failed to meet these basic commitments because of a lack of revenue. By supporting measures to raise income taxes for Maine’s wealthiest residents, the Legislature can ensure that we continue to pay it forward for future generations.
Raising taxes on high incomes makes our tax code fairer
Any of these bills would also improve the fairness of Maine’s tax code, which currently asks more of middle-income families than the highest-income earners in our state.
The income tax is meant to ask the most from those for whom the economy has delivered the most prosperity, but today, the very wealthiest Mainers pay the same top income tax rate as a middle-class individual or family.
Today, the top income tax rate kicks in at taxable income of only $51,700 for individuals and double that for married couples filing jointly — whether you’re an elementary school teacher or a millionaire CEO. In addition to raising much-needed revenue to invest in strong communities, creating a higher rate for higher incomes will improve the overall fairness of our tax code.
One-time federal funds will help, but Maine needs a long-term solution
In an April 29, 2021, story, Maine Public reported that “[Gov. Janet] Mills says even with the influx of federal pandemic relief funds, there are more needs than money to address them.”3
Mills’s assessment is correct. Federal funding to states in the recently enacted American Rescue Plan will provide more than $1 billion dollars of state fiscal relief to Maine. Those funds must be used to address immediate hardship for families and communities most affected by the COVID recession, and to make forward-looking investments in education, health care, local services, infrastructure, and social supports for families struggling to get a hold in the economy.
These investments will improve our economy and make it more resilient in the future. But if nothing changes in Maine’s tax code, we will face the same challenges of inadequate revenue when federal funding is depleted. We will once again be unable to fund the basic foundations of our economy.
Maine must craft a tax system that is built for the long term. These bills would raise significant and needed revenue and would do it in a way that is fair. Raising the income tax on high income households would give Maine the resources necessary to make essential investments in families, workers, and communities for the future.
Bill Proposals:
Note: Tax rates apply to taxable income, which is typically significantly less than a household’s total, or gross, income. Taxable income is gross income after deductions and exemptions are applied. Most households headed by single filers claim a standard deduction and personal exemption on their state income tax that lowers their taxable income by $16,400 and married households are able to claim $32,800 in deductions and personal exemptions.
Fiscal estimates and estimates of tax filers affected provided by the Institute on Taxation and Economic Policy
*Fiscal Estimate for LD 1443 is an estimate of the minimum revenue to be raised. Due to data limitations, ITEP was unable to estimate the revenue gained from the top two tax brackets for this proposal.
Notes:
[1] The baseline budget underfunds schools by roughly $100 million per year and underfunds revenue sharing by about $45 million per year
[2] Austin, Sarah. “Tax Policy Options: Maine needs progressive revenue solutions to build a stronger, fairer future.” Maine Center for Economic Policy. January 27, 2021. https://www.mecep.org/taxes-and-budget/tax-policy-options-maine-needs-progressive-revenue-solutions-to-build-a-stronger-fairer-future/
[3] Leary, Mal. “Gov. Mills Previews Major Spending Decisions Coming Up Next Month.” Maine Public. April 29, 2021. https://www.mainepublic.org/politics/2021-04-29/gov-mills-previews-major-spending-decisions-coming-up-next-month
