Commentary

Tax Foundation: Question 2 Would Devastate Maine’s Business Climate

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Passage of Question 2 would catapult Maine from its newly established position in the middle of the pack to one of the 10 worst states for business in the country.

AUGUSTA – Late last month, the Tax Foundation, the nation’s leading nonpartisan tax policy research organization, released a brief on the State of Maine’s referendum question 2. The analysis reinforces many of the concerns shared by the LePage Administration over the course of the last year regarding the tax rate, reintroduction of the marriage penalty, and the harm to small businesses.

On the topic of small business, the Tax Foundation analysis notes that Maine’s rating would freefall to 45th overall in their State Business Tax Climate Index should voters choose to pass Question 2 next week. The index, which allows for the comparison of tax systems amongst the states, recently saw Maine’s 2017 ranking climb to 30th best in the country.

“The LePage Administration has made so much progress over the last six years to improve its business climate and make Maine ‘Open for Business’,” said George Gervais, commissioner of the Maine Department of Economic and Community Development. “Question 2 would be devastating to our efforts to attract new businesses to Maine and would hinder the ability of our existing businesses to expand through capital investment and the hiring of additional employees. Question 2 will, undoubtedly, make Maine less competitive.”

Reinforcing Commissioner Gervais’ concerns, the Tax Foundation notes, “High marginal tax rates have a negative effect on entrepreneurial entry, discouraging investment in new business opportunities, and cutting potential returns to those investments. They can also make it harder for firms to attract new workers (who pay individual income taxes) to their state, which can have a long-term chilling effect on business location decisions.”

Over the course of the last six years, the LePage Administration has made significant progress in improving Maine’s business ranking. In 2011, the Tax Foundation’s 2012 State Business Tax Climate ranked Maine just 37th overall in the country. Our improvement to 30th is consistent with the administration’s efforts to make Maine’s tax code more competitive both regionally and nationally.

“It is no coincidence that following Connecticut’s move to increase their top tax rate to 6.99 percent, General Electric announced that it was moving its headquarters to Boston,” said Finance Commissioner Richard Rosen. “State policy makers there are now trying to retain Aetna as other states attempt to lure it and others away from Connecticut. As the Connecticut story shows, we can never stop trying to improve our tax and business climate. Question 2 is a step backwards after years of progress.”

Question 2 would create the second highest top marginal individual income tax rate in the United States. At 10.15 percent, the new rate, a marginal tax hike of 42 percent from the current top rate, would apply to individuals, families, and businesses with taxable income in excess of $200,000 a year.

“Targeting a small group of taxpayers with an extra tax at this time when we are working to reduce the tax burden on all Mainers is just bad tax policy,” added Commissioner Rosen. “Next week, Maine voters will have to do some serious decision making. We can continue to improve Maine’s tax and business climate, or voters can choose to make Maine an outlier by enacting the second highest income tax rate in the country.”

The Tax Foundation report concludes by noting that, “[The Question 2] tax increase would ultimately make Maine less competitive, giving Maine the highest top marginal individual income tax rate in the Northeastern region of the country.”

About Department of Administrative and Financial Services

The Department of Administrative & Financial Services (DAFS) is an innovative organization that coordinates a number of central services for departments within Maine State Government. To accomplish its various tasks and responsibilities the DAFS' service bureaus seek to work in partnership with other state agencies. Additionally, the Department works to provide quality services to Maine citizens and continues to establish processes that will ensure accountability in the State's financial performance that will warrant the highest level of public confidence.

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