Ensuring fair taxation of wealth should always be a priority, and the pandemic has revealed just how important it is. Mostly low-wage workers on the frontlines of our economy faced real hardship and saw their wealth decline. They weren’t alone. In fact, the share of wealth held by the bottom 90 percent of United States’ households fell in 2020.1 Meanwhile, the top 1 percent actually increased their share of all wealth.
Our tax code makes this problem even worse. Because of the way we tax wealth which includes property, financial assets, cash, and securities, low- and middle-income households wind up paying more while wealthy households continue to see their fortunes rise.
Wealth in Maine is taxed primarily through local property taxes that are mostly limited to buildings, land, and large machinery. This definition of property includes a large proportion of low- and middle-income wealth, while missing a big share of the kinds of wealth held by the ultra-wealthy: While the bottom half of households by wealth had 51.2 percent of their wealth held in real estate and another 19.4 percent in consumer durables, which for many families are largely made up of vehicles, only 13.7 percent of the top 1 percent’s wealth was held in real estate and consumer durables on average.
As a result, the wealthiest households are paying property taxes on a much smaller percentage of their wealth than low- and middle-income households. Many low- and middle-income households are paying property tax on property that they do not own. For example, a portion of rent payments are used to cover property taxes on rental property and many low- and middle-income homeowners pay taxes on their full property value even if they only have a portion of their home paid off.
By contrast, nearly half (45.2 percent) of the top 1 percent’s wealth was made up of corporate equities and mutual fund shares, property that is not taxed until it is sold.
The legislature is considering a bill sponsored by Representative Grayson Lookner, LD 1514, that would assess a one-time tax on these assets to increase revenue for Maine’s towns and to improve access to affordable housing.
LD 1514 would create a one-time assessment on intangible assets, such as financial assets, cash, securities, and other financial instruments, to improve fairness in Maine’s property tax. It would assess a 0.5 percent tax on the value of those assets in excess of $5,000,000. Finally, the bill would establish that half of the revenue generated by the tax would fund Municipal Revenue Sharing, with the other half funding the Housing Opportunities for Maine (HOME) Fund.
LD 1514 is a step in the right direction to mend this unfairness in our tax code and bring greater equity to how wealth is taxed. The Legislature should pass it.
Notes:
[1] Board of Governors of the Federal Reserve. Distributional Financial Accounts. Last Update: March 19, 2021
