Everyday Mainers Will Pay for Efforts to ‘Tax the Rich’

By Maine Policy Institute Policy Analyst Montana Towers

Maine is at an important crossroads.

For years, the state has struggled with slow population growth, an aging workforce, and slow economic growth—challenges that make it hard for the state to live up to its long-standing promise of being “The Way Life Should Be.”

Mainers already contribute over $7,000 per person in state and local taxes, ranking our state 16th highest nationally and above the U.S. average. Employers across Maine report challenges finding workers, and many young people continue to leave the state in search of opportunity elsewhere.

Despite these well-documented struggles, some lawmakers remain determined to raise income taxes even higher, making an already burdensome system even worse for families already struggling to make ends meet. Two bills being advanced in Augusta—LD 229 and LD 1089—seek to do just that.

LD 229 reconfigures tax brackets and raises the top marginal rate from 7.15% to 8.95%. LD 1089 originally added an additional 4% surcharge tax on income over $1 million, but it has since been amended to add a 2% surtax. The passage of both bills would push Maine’s top income tax rate to nearly 11%.

Supporters frame these tax hikes as targeting the “rich,” arguing they will only affect a small number of ultra-wealthy Mainers. That is not true. These taxes will affect everyday business owners and Mainers across all tax brackets.

Most small businesses in Maine pay taxes through the individual income tax, meaning these higher personal income rates would affect profits for small, family-owned businesses. Think of a lobster wholesaler in Rockland or a family dairy farm in Aroostook County. Their owners report every dollar of business profit on their personal returns. When taxes increase on those businesses’ income, the consequences do not stop with the individual business owner. Higher taxes influence decisions about hiring new employees, investing in equipment, and even wages and raises.

At a time when Maine needs more economic growth and job creation, the Legislature should not be pursuing policies that risk less investment and slower growth. Raising income taxes sends the wrong message to the very professionals and small business owners Maine needs to attract—and keep—in order to remain economically competitive.

Another concern is that taxes sold as targeting the “rich” have a habit of being expanded to impact lower earners. The modern federal income tax began in 1913 and was sold as something that would hit fewer than 1% of Americans. Within decades, it affected the majority of U.S. households. What begins as a tax on high earners today can slowly pull in far more Maine families and small businesses tomorrow, as lawmakers look to quietly lower the income threshold of these new taxes over time.

Maine already faces a competitive disadvantage compared to its lone neighbor, New Hampshire, which has no income tax at all. Its economy is growing faster, its wages have risen more, and its overall economic prosperity has pulled ahead, even though it has roughly the same population as Maine.

For many Maine families who have always wanted to stay here and raise their children in the place they love, that competition—as well as the threat of higher taxes—could be the breaking point that forces them to leave simply because they feel they have no other choice.

Maine’s future depends on its ability to grow. That means attracting families, encouraging investment, and making the state a place where businesses can succeed.

Instead of making Maine even less competitive by adopting tax increases that will affect all Mainers, lawmakers should reject LD 229 and LD 1089 and focus on policies that strengthen our economy and expand opportunity. That’s how we live up to our promise of being “The Way Life Should Be.”