Commentary

MPA seeks to increase taxes on hardworking Mainers by $310 million

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A lot of ink has been spilled detailing the catastrophic consequences of crafting tax policy through public referendum, as left-wing groups in Maine did in 2016 with a 3 percent surtax on high-income Mainers. Passing major legislation without hearings, work sessions, or opportunities for amendment or compromise is a lousy way to make law.

But if you thought 2016’s ballot measures were bad, we’ve got a doozy coming down the pike. The latest initiative being pushed by the Maine People’s Alliance would create a massive government program to provide in-home and community support services for disabled and elderly Mainers — regardless of income — at a cost of hundreds of millions of dollars annually.

Earlier this week, The Maine Wire published an article by Governor LePage laying out many of the negative effects such a program would have — poor oversight and lack of bureaucratic accountability, forced unionism for home care workers, unclear spending rules that leave the door wide open to fraud and abuse, and longer wait lists for needy Mainers. On top of these valid concerns, the program would cost a whopping $310 million, according to the Maine Legislature’s nonpartisan analysis office.

To put that in perspective, Question 2 in 2016, which imposed a 3 percent surtax on income over $200,000 and was almost universally opposed by economists and business leaders, was projected to raise approximately $157 million annually.

How do the wizards at the Maine People’s Alliance intend to raise this enormous sum of money, year after year? By taxing the very people who contribute the most to our economy, of course (forget that the top 10 percent of households in Maine already pay more than 56 percent of all individual income taxes, according to a 2014 study). 

The law would raise revenue from a new tax of 3.8 percent on income and wages that exceed the maximum amount subject to social security employment taxes ($128,400 in 2018). For wage income, employers would pay 1.9 percent and employees would pay the other 1.9 percent (to total 3.8 percent). For nonwage income, individuals would pay 3.8 percent of Maine adjusted gross income above the threshold.

According to the Bureau of Labor Statistics, 24 occupations in Maine earn more than $100,000 per year, of which nine have been designated “in-demand.” Maine’s high tax burden already makes it difficult to attract doctors, scientists, engineers, and other professionals. This initiative would exacerbate this trend, to the detriment of our economy.

Maine desperately needs to adopt pro-­growth policies that attract young, hard-­working families from across the country and around the globe. Maine’s current high-­tax policies contribute to the opposite trend: “tax flight” into low-­tax states. Almost universally, research on the effects of tax rates on migration patterns has found that variations in income tax rates are associated with small but significant effects on net out-­migration from a state, as well in declines in in-migration.  

In 2016, using the highly-respected STAMP economic model, the Maine Heritage Policy Center estimated that a 3 percent surtax on incomes over $200,000 would cause the loss of more than 4,000 jobs in 4 years, as well as substantial reductions in business investment and real disposable income. Given the much lower threshold envisioned by the current proposal ($128,400 vs. $200,000) and the higher tax rate (3.8 percent vs. 3 percent), it is certain that the effects of the home care initiative would be even more destructive.

Fiscal discipline, not exorbitant tax rates, will lead Maine to prosperity.

About Jacob Posik

Jacob Posik, of Turner, is a policy analyst for the Maine Heritage Policy Center. He can be reached at jposik@mainepolicy.org.

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