Maine Center for Economic Policy applauds the passage of LD 1231, “An Act to Bring Fairness in Income Taxes to Maine Families by Adjusting the Tax Brackets” in the Maine House and Senate as progress towards a fairer tax system.
This proposal updates Maine’s income tax by adding more tax brackets and raising rates for higher incomes. As a result, people earning over $500,000 annually will pay more on average, while those making between $75,000 and $500,000 will pay less. However, Mainers earning less than $30,000 will see no benefit, and only about 1 in 4 households with income between $30,000 and $75,000 will see a modest benefit.
Though LD 1231 is a step in the right direction, it could be improved in several ways:
- The progressive rate structure should be maintained for higher incomes. The bill decreases the tax rate to 7.15 percent for income between $205,000 and $500,000. This is inconsistent with progressive taxation, where taxes typically increase as income increases. At minimum, the rate for this income group should equal the 7.55 percent rate that applies to earnings between $144,500 and $205,000.
- The bottom bracket should stay at its current level. The bill expands the bottom tax bracket to apply the lowest tax rate to the first $41,600 in taxable income for single filers compared to $26,050 in Maine’s current tax code. This translates to a $148 reduction in taxes for all single filers with taxable income of more than $41,600 including Maine’s wealthiest residents. While on its face this would seem like a win for households with low and middle income, it comes at a high cost and the revenue saved by rejecting this change could be used to provide more targeted relief. In addition, to reap the full benefit of the current change to the bottom bracket contained in LD 1231, a single tax filer with no dependents would need to earn at least $61,200 in 2024. For a married couple with no children the amount would be $122,400. That’s because taxable income equals the amount someone earns less deductions and exemptions available through the tax code.
- Revenue generated from changes to LD 1231 should target improvements for households with low and middle income and improving the lives of working families. Maintaining a progressive rate at higher incomes and preserving the current bottom bracket thresholds will generate revenue that could be used to make an even fairer tax code. Rather than expand the bottom bracket, a better solution would be to increase Maine’s standard deduction. That’s because it phases out at higher income levels while delivering more benefit to households with lower and middle income. Another option would be to expand credits like the Earned Income Tax Credit, Sales Tax Fairness Credit, or Property Tax Fairness Credit which are similarly more beneficial to households with lower and middle income. Finally, there are ongoing unmet needs the legislature has already identified that could be sustained by funding generated from these changes.
Make no mistake, LD 1231 represents an important step toward tax fairness in Maine that has garnered bipartisan support. By making the changes suggested above, the proposal can be further improved to deliver greater benefits to Mainers with low and middle income without sacrificing our ability to fund other important priorities facing the state. With strong bipartisan support in the House and a nearly two-thirds majority vote in the Senate, it’s clear this approach is a viable option to increase revenue, support working class Mainers, and make our tax code fairer.
