The last year has been challenging for most people in the country and our state. Whether you’re a Maine student, worker, employer, public official or something else, your life was likely upended at some point in 2020 by the coronavirus pandemic and our state government’s response to it. People were forced to stay home, businesses were ordered to close and a mountain of economic restrictions were implemented to micromanage every interaction within society.
After all the pain and suffering of 2020, some Maine lawmakers want to add insult to injury in the form of new income tax increases on average Mainers. Three recent proposals in the Maine Legislature – LDs 495, 532 and 570 – seek to increase Maine’s top individual income tax rate above 7.15% or create new tax brackets for high earners.
LD 495, sponsored by Rep. Laurie Osher of Orono, would grow Maine’s current top individual income tax rate from 7.15% to 8.35% and create a new upper bracket that taxes Mainers at 11.15%. Single and married Mainers filing separate returns would pay the 11.15% rate on income earned over $100,000, heads of households would pay 11.15% on income earned over $150,000, and married couples filing joint returns would pay this new top rate on income earned over $200,000.
Middle-income Mainers who currently earn between $50,000 and $100,000 pay the current top income tax rate of 7.15% on their earnings. Under LD 495, these supposedly wealthy Mainers would now pay 8.35%, a 16% increase. The new 11.15% top rate would be the second highest individual income tax rate in the country, trailing only California at 13.3%.
LD 532, sponsored by Sen. Joe Baldacci of Bangor, creates a new upper income tax bracket of 7.95% and establishes a new tax credit. The current structure of Maine’s income tax code would mostly be retained under the bill, with the exception of the new upper bracket created. Single and married Mainers filing separate returns would pay 7.95% on earnings in excess of $200,000, heads of households would pay 7.95% on income earned over $300,000, and Mainers filing joint returns would pay this rate on earnings in excess of $400,000.
The bill also creates a new tax credit for “eligible individuals” equivalent to 10% of their income tax withholdings. Under the bill, “eligible individuals” are: 1) Single and married persons filing separate returns with income less than $60,000; 2) Heads of households with taxable income less than $90,000; and 3) Married couples filing joint returns with taxable income less than $120,000.
Sen. Baldacci’s bill isn’t a tax cut but rather a tax shift. A better path forward would be for lawmakers to resurrect LD 1292 from the 129th Legislature, which simply proposed tax cuts for Mainers across the board without offsetting these cuts with tax increases on higher earners. Under that bill, individuals earning between $25,000 and $50,000, $50,001 and $75,000, $75,001 and $100,000 would have seen their income tax liability reduced by $111, $275 and $420, respectively.
LD 570, sponsored by Rep. Seth Berry of Bowdoinham, would create a new 3% surcharge on net capital gains and dividend income in excess of $250,000 for taxpayers filing single or married separate returns or $500,000 for Mainers filing joint returns. Previous attempts to reinstitute the 3% income surtax, approved by voters in 2016 and struck from Maine law in 2017 budget negotiations, have been unsuccessful. Rep. Berry now seeks to reclaim that provision by specifically targeting capital gains and dividend income.
Another bill, LD 501, sponsored by Rep. Heidi Brooks, would increase Maine’s corporate income tax rate from 8.93% to 12.4%. A 12.4% corporate income tax rate in Maine would be the highest in the nation, exceeding New Jersey’s current 11.5% rate.
Americans fled high-tax states like New Jersey in droves last year. According to CNBC, New Jersey was the top “outbound” state for migration in 2020 based on an analysis of moving data by United Van Lines. New York, California, Connecticut and Illinois — similar high-tax jurisdictions — round out the rest of the top five states Americans fled last year.
Interestingly enough, the top states for in-migration in 2020 were Arizona, Florida, Delaware, South Carolina and Wyoming, all of which have lower overall tax burdens than the highest out-migration states.
Maine has serious demographic woes that must be reversed. We need to attract young, talented people to live and work here. An 11.15% top income tax rate and a 12.4% corporate income tax rate will do just the opposite.
Unfortunately, too many elected officials in Maine have never created value for others and don’t know what it’s like to have employees who depend on them. They think a couple that earns more than $200,000 is “wealthy” for owning a small business that employs 10 people, and should be penalized for their marginal success. It doesn’t matter if that same couple earned $400,000 owning that same business before the pandemic – they make too much money based on the arbitrary lines drawn in these various bills and must be punished.
This is the same backward thinking that has dominated Maine for decades and led to the poor economic and demographic condition of our state. The longer we continue down this line of thinking, the worse off our state will be.