Lawmakers on the Legislature’s tax committee are expected to unanimously reject a bill that would impose an additional four percent tax on capital gains earned by residents over a certain threshold.
Capital gains refers to the increase in the value of an asset between the time it is acquired and when it is sold. These assets include a wide range of investments, including stocks, bonds, or real estate, as well as items purchased for personal use, like furniture or a boat.
Short-term capital gains — or those earned on an asset owned for less than a year — are taxed alongside all other income in accordance with an individual’s regular income tax bracket.
Long-term capital gains, on the other hand, are subject to their own specific tax rate of 0 percent, 15 percent, or 20 percent, depending upon a person’s taxable income and filing status. Most filers are already required to pay 15 percent of their long-term capital gains in taxes.
Currently, Maine taxes capital gains alongside all other forms of income. Under the current structure, this means that they are taxed at a rate of 7.25 percent at most.
Were LD 1047, sponsored by Rep. Grayson B. Lookner (D-Portland), to be passed and signed into law, it would impose an additional four percent tax on any capital gains earned over a particular threshold, bringing the maximum tax rate on this portion of Mainers’ income to 11.25 percent.
Subject to this additional tax would be capital gains over $250,000 for those who are single or married filing separately, $375,000 for heads of household, and $500,000 for those who are married filing jointly.
[RELATED: Maine Dems Looking to Impose Additional 4% Capital Gains Tax on Earnings Over Certain Threshold]
Cosponsoring this legislation are Sen. Denise Tepler (D-Sagadahoc), Rep. Matthew D. Beck (D-South Portland), Rep. Deqa Dhalac (D-South Portland), Rep. Gary Friedmann (D-Bar Harbor), Rep. Drew Gattine (D-Westbrook), Rep. Tavis Rock Hasenfus (D-Readfield), Rep. Ann Higgins Matlack (D-St. George), Rep. Amy J. Roeder (D-Bangor), and Sen. Mike Tipping (D-Penobscot).
“I stand before you today because Maine faces a fundamental choice about who our economy works for,” said Rep. Lookner when introducing this bill to the Taxation Committee. “While working families struggle to afford housing, childcare, and healthcare, the wealthiest among us have never had it better – benefiting from a tax system that rewards wealth over work.”
“Opponents will claim this tax will hurt Maine’s economy, but the evidence says otherwise,” he argued. “Study after study shows capital gains tax breaks don’t spur growth – they simply reward existing wealth.”
“With federal tax cuts draining resources from our state and working families struggling to get by, we can’t afford to maintain a system that favors the privileged few,” Lookner concluded.
The Maine Center for Economic Policy (MCEP) testified in support of this bill, expressing a similar sentiment to that which was articulated by Lookner.
“We believe unearned income should not be taxed at the same rate as income earned through work,” said MCEP. “Capital gains are one of the main drivers of income inequality. Income from capital gains is highly concentrated at the top.”
The Maine Policy Institute (MPI), however, testified in opposition to the proposal, arguing that it “may be well-intentioned” as a means by which to generate additional revenue, but explains that it “ultimately punishes investment, deters economic growth, and reinforces the perception that Maine is hostile to capital formation and innovation.”
“Maine already faces steep economic headwinds: an aging population, a shrinking workforce, and a chronic need for private investment in housing, infrastructure, and business development,” MPI argued. “Taxing capital more aggressively than our competitor states will only exacerbate these challenges. Investors and entrepreneurs are highly mobile. When faced with high capital gains taxes, they may defer asset sales, relocate to lower-tax states like New Hampshire or Florida, or avoid investing in Maine altogether.”
Although committee members have already unanimously voted to reject this proposal, they have not yet officially reported out their recommendation to the Legislature.
Should their unanimous opposition to this proposal be finalized, LD 1047 will not be considered any further this legislative session unless extraordinary action were to be taken by a super-majority of lawmakers.
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Disclosure: The Maine Wire is a project of the Maine Policy Institute.
