Lawmakers Divided Over Bill Eliminating Maine’s Income Tax and Require “Zero-Based Budgeting”

A bill that aims to abolish Maine’s income tax and require state agencies to regularly engage in “zero-based budgeting” may be a canary in the coal-mine, testing how much willingness there might be on the legislature’s tax committee for considering a radically new approach to taxing Mainers.

The bill, LD 671, was sponsored by Rep. Laurel Libby (R-Auburn) and cosponsored by a handful of other Republican legislators. Based on current indications, it is headed towards a divided report.

Under the proposed law, the state government would be prohibited from collecting income tax from residents as of January 1, 2026.

The state would also be directed to develop a zero-based budgets for fiscal years 2026-27 and 2028-29. From that point on, all departments and agencies in the Executive, Legislative and Judicial Departments of State Government would be required to create a zero-based budget at least once every eight years.

For the purposes of this legislation, “zero-based budgeting” refers to a method of budgeting where all “programs and activities are justified for a budgetary period using cost-benefit analysis without regard to the amount that was budgeted for those programs and activities in a prior budgetary period.”

In other words, all corners of the state government would regularly be required to reconsider all aspects of their spending and rebuild their budgets from the ground up.

This technique has often been championed by fiscal conservatives as a means by which to restrain the growth of government spending.

During off-years, departments and agencies would need to undertake “targeted budgeting or a similar alternative” that include, at a minimum, recommendations for five percent and 10 percent spending reductions.

[RELATED: Should Maine Be Charging Residents Income Tax? These Lawmakers Don’t Think So]

A representative of the Department of Administrative and Financial Services (DAFS) testified in opposition to this bill, arguing that it seeks to eliminate the income tax “without consideration of the impact of those cuts on the services offered by the State of Maine and the people who rely on those services.”

The Maine Education Association (MEA) also testified against this bill, suggesting that the repealing the income tax would force public schools to rely more heavily on property tax revenue to fund their operations.

“This bill proposes the opposite of what we should be doing. Rather than abolishing the income tax, we should be raising income taxes on the wealthiest among us, especially to fund the best tool for social mobility and future economic progress for our state — public education,” they said.

The Maine Center for Economic Policy (MCEP) argued that eliminating the income tax would result in lower- and middle-income Mainers bearing a more substantial tax burden.

The Maine Policy Institute (MPI), on the other hand, testified in support of this bill because it “presents a transformative opportunity for Maine to usher in a new era of economic competitiveness and fiscal responsibility.”

According to MPI, “eliminating the income tax would stimulate economic growth, increasing revenue from other sources, such as sales and property taxes, as more individuals and businesses move to Maine.”

Preliminarily voting in support of this bill were Rep. Tracy L. Quint (R-Hodgdon), Rep. Shelley Rudnicki (R-Fairfield), and Rep. Russell P. White (R-Ellsworth).

All Democratic members of the Committee voted in opposition to this bill, alongside Sen. Bruce Bickford (R-Androscoggin).

The Taxation Committee will eventually release its final recommendations to the full Legislature where lawmakers will have the opportunity to vote on its passage or rejection.

Click Here for More Information on LD 671

This, however, is not the only bill under consideration this session that seeks to eliminate Maine’s income tax.

At the end of March, the Taxation Committee nearly unanimously voted to reject another Republican-led proposal that would phase out the state’s income tax over the next few years, eliminating it entirely by 2030.

[RELATED: Here’s How Republican Lawmakers Plan to Phase Out Maine’s Income Tax by 2030]

The Appropriations and Financial Affairs Committee is also currently considering a related proposal that would require state agencies to adopt a zero-based budget at least once every ten years after doing so for the 2027-28 and 2028-29 fiscal years.

A public hearing for this bill was held on April 17, but a work session has not yet been scheduled.

Disclosure: The Maine Wire is a project of the Maine Policy Institute.