There’s been a lot of talk in Augusta lately about the implications of the referendum questions passed on last November’s ballot. This week, the Committee on Taxation held public hearings on a number of bills, all seeking to address Question 2, the referendum question that added a three percent income tax on certain filers in order to meet the state’s obligation to fund K-12 education at 55 percent.
The bills that are currently before the committee range from a full repeal of Question 2 to simply tweaking the threshold of when the new income tax rate kicks in. Another bill, presented by my colleague, Senator Dana Dow (R-Lincoln), would keep the education portion of Question 2, but it would do away with the new income tax and instead use other new revenue streams available to the state such as sales taxes collected by Amazon, Airbnb and the newly legalized marijuana industry.
After hearing testimony from about 100 individuals over the course of nearly eight hours, the message was clear: while adequately funding education is important, the method used in Question 2 to get there is already having a detrimental effect on our economy.
While it is clear to me that we need to get rid of this new income tax and replace it with other funding sources, there are some who want to see the new tax rate stand, as they see it as a tax on the rich.
But this message is very misleading because many small businesses and employers throughout the state file as S-Corporations, meaning the business owners claim all business profits as personal income, even though the funds are often wrapped up in payroll, vendors, infrastructure and other costs necessary to grow the business. So while these businesses may have a profit of over the $200,000 threshold, this is not money in the bank.
This new tax bracket represents a 42 percent tax increase that is impacting 11,450 businesses throughout Maine. These businesses range from large employers all the way down to mom and pop shops, making their tax rate higher than large corporations.
Bill Stauffer, a small business owner from Portland, testified, “Before I am labeled simply as an anti-tax person on the right, let me tell you that I’ve been a life-long Democrat. I come from a family of public school teachers: my father, my sister, aunt and uncle. I know what it is like to grow up on a teacher’s salary…Like being a teacher, owning a small business is hard. We already face one of the highest income tax rates in the nation – this bill would make it the highest in the nation for small companies like mine.”
Various chambers of commerce from around the state came to testify, including the Bangor Region Chamber of Commerce. They told the committee about the recent loss of a board member who is moving their business and family to New Hampshire because of this additional tax. According to testimony, “This family owns and operates a successful business with locations in Bangor, New Hampshire and Massachusetts. They have two young children in Bangor Schools and are valued citizens and giving members of our community.” While family ties have kept them in the state for most of their lives, they no longer can afford to do under the new tax climate.
Throughout the afternoon/evening, the committee heard from a number of employers, including lumber dealers, family grocers, small businesses, major employers, realtors, builders, contractors, software companies, contractors, even a rope manufacturer. They also heard from doctors and health care providers about how difficult this new tax rate will make it to attract new talent to Maine.
Eastern Maine Health Care Systems, a group that employs more than 700 physicians and mid-level clinical care providers, testified, “EMHS, along with other physician employers in Maine, recruits nationally for physicians generally competing with health systems and hospitals in regions of the country with stronger economies that support higher compensation packages…The new income tax surcharge of 3 percent imposed on taxable income above $200,000 or more presents a fundamental challenge to recruiting physicians to Maine, particularly new physicians with significant debt.”
It’s clear from the testimony that having the highest income tax rate in the country on incomes between $200,000 and a million is driving the very individuals away that we need to have a healthy and vibrant economy. Something must be done to reverse this trend before it’s too late.
If you would like to comment on any legislative matter, or if you would like to visit the State House, please don’t hesitate to contact me. I can be reached at Kimberley.Rosen@legislature.maine.gov, by phone at 287-1505 or on Facebook as Kim Rosen for Maine.
