Corporations need reliable infrastructure and healthy, educated workers to be successful. The Legislature and local communities work hard to foster these conditions for success. Businesses chip in to provide for these fundamentals through corporate taxes.
Lawmakers are considering a bill, LD 903, that would increase the resources available to pay for these economy-boosting investments through small increases to the corporate income tax for businesses with more than $2 million in taxable profits. It also would make Maine’s corporate tax structure more progressive — ensuring that the corporations that have had the most success in our state are giving back to support our Maine’s future prosperity.
This proposal comes after Maine corporations received massive federal and state tax breaks in the past year.
First, the 2017 Tax Cuts and Jobs Act replaced the progressive corporate tax with a top rate of 35 with a flat tax of 21 percent. It also created a new incentive to shift profits overseas where, in many instances, they are taxed at half that rate. There is no evidence that these cuts help the average American. Spikes in investments, a necessary precursor to positive wage effects, have failed to materialize.[1] Because these tax cuts carry a $1.9 trillion price tag, some economists and tax policy experts predict the increase in the debt or the spending cuts that may come later will make Americans worse off over the long run.[2]
Second, after the federal tax bill passed, the 128th Maine Legislature cut state corporate taxes by expanding the lower corporate tax brackets, reducing the amount of corporate profits subject to higher tax rates. Under the new bracket structure, a corporation that formerly paid the top corporate tax rate could pay the lowest rate on all their profits.
Corporate Rates and Brackets |
||||
| 2017 Income Brackets | Rate | 2018 Income Brackets | Rate | |
| Less than $25,000 | 3.5 | Less than $350,000 | 3.5 | |
| $25,000 to $75,000 | 7.93 | $350,000 to $1,050,000 | 7.93 | |
| $75,000 to $250,000 | 8.33 | $1,050,000 to $3,500,000 | 8.33 | |
| $250,000 or more | 8.93 | $3,500,000 or more | 8.93 | |
LD 903 would recoup some of the revenue lost from the 2018 state corporate tax cuts. By asking those corporations that profit the most from our infrastructure and people to contribute more, it would help ensure future entrepreneurs have the same resources to succeed in this state.
The bill achieves this with two new brackets and a slight increase of the top rate from 8.93 to 9 percent.
Proposed Corporate Rates and Brackets, 2020 |
|
| Income Bracket | Rate |
| Less than $350,000 | 3.5 |
| $350,000 to $1,050,000 | 7.93 |
| $1,050,000 to $2,000,000 | 8.33 |
| $2,000,000 to $3,000,000 | 8.5 |
| $3,000,000 to $3,500,000 | 8.75 |
| $3,500,000 or more | 9 |
Analysis by the Economic Policy Institute shows how changes to state corporate tax changes between 1980 and 2010 affected wages and income inequality. EPI found that state corporate taxes have no significant effect on wage growth. Wages in states that have cut corporate tax rates show no statistical difference from states that have increased corporate rates during the same 30-year window. The real effect of corporate tax cuts is increased income for the top 1 percent. States that have cut corporate tax rates have seen the share of incomes accruing to very wealthiest households grow much faster than those states where corporate tax rates have been increased. In other words, states that increased corporate tax rates experiences more equal income growth.
LD 903 would make our tax code fairer, and it would secure much-needed revenue to invest in our future prosperity. For these reasons, the Legislature should approve it.
Notes:
[1] Blair, Hunter. Data continues to show little evidence that tax cuts are trickling down to typical workers, and now House Republicans want a do-over. September 19, 2018. Economic Policy Institute. https://www.epi.org/blog/data-continues-to-show-little-evidence-that-tax-cuts-are-trickling-down-to-typical-workers-and-now-house-republicans-want-a-do-over/
[2] Gale, William, et al. Effects of the Tax Cuts and Jobs Act: A preliminary analysis. June 13, 2019. Tax Policy Center. https://www.taxpolicycenter.org/sites/default/files/publication/155349/2018.06.08_tcja_summary_paper_final_0.pdf
