Legislators calling for the repeal of Gov. LePage’s tax cuts for the “rich” ignore the reality that Maine’s previous top individual income tax rate of 8.5 percent has already pummeled high-income taxpayers, forcing them out of state or into nonproductive tax shelters.
Consequently, Maine’s economy suffers from underinvestment, a lack of jobs and lower state revenue.
An MHPC study released Wednesday,“Where Have Maine’s ‘Rich’ Gone?”, shows that Maine has fewer high-income taxpayers earning more than $200,000 or earning more than $1 million when compared to the national average or neighboring New Hampshire (which has no individual income tax).
- Despite have nearly identical populations, New Hampshire’s millionaires significantly outnumber Maine’s (984 vs. 513) and have more income ($4.1 billion vs. $1.3 billion).
- Between 2001 and 2010, the adjusted gross income for Mainers earning over $1 million grew by only 5.1 percent. The national average grew by 12.3 percent and surged in New Hampshire by a whopping 55 percent.
- While starting at nearly identical levels in 2001 ($2.5 million in Maine and $2.7 million in N.H.), the average millionaire in New Hampshire has nearly double the income by 2010 ($2.6 million in Maine vs. $4.1 million in N.H.).
- Maine’s high-income taxpayers are more likely to be a hard-working business owner that only appears to be “rich” on paper due to pass-through business income.
The number of Maine’s high-income taxpayers who own businesses through partnerships and S-corporations (78.2 percent of taxpayer earning over $1 million) is higher than the national average (74.2 percent). Since these are “pass-through” business entities, taxes are paid through the individual income tax returns of the owners.
“Rather than raising the tax burden on high-income taxpayers, Maine’s policymakers should instead find ways to encourage them back into the state or into productive activities,”said J. Scott Moody, CEO of MHPC and author of the report.
If Maine had the same number of taxpayers earning more than $200,000 as the national average, Maine’s economy would have been up to $4.8 billion larger in 2010 and would have had higher state individual income tax of up to $410 million (taxed at 8.5 percent). Much of this would have been business income, meaning even greater investment, job creation and revenue.
“Unfortunately, Maine’s policymakers over the past few decades have decided to chase an ever-shrinking pie of high-income dollars with ever higher tax rates,” Moody said. “This has created a vicious cycle where Maine’s high-income taxpayers are now fewer in numbers and poorer in income when compared to the national average or neighboring New Hampshire. Governor LePage’s reduction of the top individual income tax rate to 7.95 percent from 8.5 percent was an important step in reversing this vicious cycle and helping to grow the economic pie for all Mainers.”
Download a copy of “Where Have Maine’s ‘Rich’ Gone?” here.