The Senate tax bill’s proposed 23% pass-through deduction would cost Maine $57 million a year in state revenue. It does so by reducing state income taxes primarily for wealthier households – 62% of the tax cuts associated with the pass-through proposal would benefit the top 5% of Maine households, or those making more than $181,000.
The reason this proposal reduces state revenue is simple. Because much of Maine’s income tax code is tied to the federal tax code, provisions that reduce taxable income for individuals who claim pass-through income at the federal level will also reduce their taxable income at the state level. The only way Maine would not lose $57 million that helps fund our schools, health care, public safety, and other investments that support thriving communities is if the state legislature chose to decouple from the federal tax code on this particular provision.
The impact of the pass-through proposal on Maine’s budget highlights a key problem with the tax bills making their way through Congress. There are a wide range of adverse impacts on individuals and states that are not being considered in the rush to push these bills through. What we do know is that a sudden revenue drop of $57 million annually in Maine will compromise our ability to invest in essential priorities like education and health care.
