Opinion: A recent history of Maine’s swiftly evolving tax code

For many of the Nineteen Nineties and 2000s, Maine’s tax code remained comparatively secure. Company and earnings tax charges had been unchanged and aside from modifications to how the state calculates what portion of company earnings are taxable, issues largely stayed the identical.

In 2004, Maine voters required the state to select up 55% of Ok-12 training prices in order that training funding could be much less reliant on property taxes. Maine was then hit by the Taxpayer Invoice of Rights (TABOR) initiatives sweeping the nation, as voters had been requested to contemplate proposals in 2006 and 2009 that will have restricted state spending and progressively eradicated the earnings tax. Whereas the 2004 training initiative succeeded and the TABOR initiatives failed, the problem of taxes moved nearer to the middle of the coverage debate.

In 2009, then-Gov. John Baldacci championed an earnings tax reduce with a big enlargement of the gross sales tax base. The enlargement included taxes on some providers comparable to amusement parks, sporting occasions, and a spread of upkeep and repair transactions, together with auto restore and dry cleansing. The proposal additionally elevated the meals and lodging tax and changed the state’s graduated earnings tax construction with a flat 6.5% charge and a 0.35 proportion level surcharge on earnings over $250,000. Nonetheless, a ensuing poll initiative overturned the complete bundle, reverting to the prior tax construction.

After Gov. Paul LePage took workplace in 2011, he used his finances proposals to advance his fundamental precedence: elimination of the earnings tax, a stream that represented 48% of revenues on the time. In response, the legislature reduce earnings tax charges and elevated reliance on gross sales taxes within the budgets handed below the LePage administration.

Whereas LePage was in the end unsuccessful in repealing the earnings tax throughout his tenure as governor, Maine went from having a largely secure tax code that had undergone few modifications to at least one that quickly advanced. Regardless of some income elevating efforts, comparable to increasing the gross sales tax to extra items and providers, the tax modifications below LePage had been web losses to the state’s income system and resulted in earnings tax accumulating $895 million much less per yr in 2022 {dollars}. A few of these tax modifications helped enhance after-tax incomes for households with low earnings, however a staggering 46% of this tax reduce advantages the wealthiest 20% of households making greater than $115,000 a yr.

Along with these modifications, in the midst of LePage’s tenure, he led a cost in opposition to the 2016 voter permitted poll measure to enact a 3 % surcharge on family earnings over $200,000. This surcharge would increase $219 million for training (utilizing 2022 {dollars} and incomes) however LePage instantly proposed eliminating the surcharge and the legislature in the end adopted by way of within the finances that handed in 2017, returning Maine’s high charge to 7.15%. This tax reduce is on high of the opposite $895 million reduce out of the earnings tax. Elimination of the training surcharge represents a median tax reduce of $23,400 to Maine’s high 1% as we speak.

LePage additionally constantly pursued insurance policies that will shift the price of providers onto cities and property taxpayers. He repeatedly tried to remove the homestead property tax exemption for households with folks below the age of 65, gutted the state’s “circuit breaker” program that lowered property tax payments for households with low incomes, and failed to completely fund income sharing and training prices to assist native providers and faculty districts, driving up property taxes.

Underneath the Mills administration, the governor and legislature proceed to contemplate and go modifications to the tax code that erode the earnings tax, however the proposals have been narrower in scope than the sweeping modifications LePage tried to push by way of. And fairly than specializing in slicing tax charges for the wealthiest households and companies, Mills has labored to enhance packages that cut back taxes for households and younger professionals with low earnings and has restricted her broad cost packages to one-time bills that don’t compromise revenues in future years.

Since Mills took workplace, the state’s Earned Earnings Tax Credit score, a profit for practically 100,000 working Mainers with low earnings, has elevated five-fold and a number of expansions of the state property tax equity credit score have tried to alleviate excessive hire and property tax prices for households with low incomes. To strengthen the tax code, the governor and legislature have additionally handed payments that restrict loopholes for firms taking the Maine Capital Funding Credit score and Overseas Derived Intangible Earnings deduction. Moreover, Mills and the legislature have labored to streamline and broaden the state’s pupil mortgage reimbursement earnings tax credit score that may reimburse Mainers for prices paid towards pupil loans as much as $2,500 a yr.

Alongside these modifications, nevertheless, the legislature included a provision in the latest finances to extend the quantity of untaxed pension earnings from $10,000 to $35,000 over the course of 4 years. This adjustment comes at an important price to state revenues, amounting to $85 million per yr as soon as totally phased in, two-thirds of which is able to profit the wealthiest 20% of Mainers.

Along with bettering the property tax equity credit score, Mills has totally funded the state’s share of training prices and income sharing for cities to assist stabilize property taxes whereas additionally rising the exemption quantity of the homestead exemption program from $20,000 to $25,000 and phasing in full funding for this system on the state stage as an alternative of requiring cities choose up half the fee.

We pay for issues that profit all of us — like faculties, roads, parks, public security, and clear water — with the sources raised by way of taxes. As Maine continues to revise strategies of accumulating important income, the Maine Heart for Financial Coverage urges elected leaders to weigh the selection between tax cuts that compromise sources and ensuring all staff, households, and communities have the instruments and alternatives they want.

This submit was initially revealed on the Maine Heart for Financial Coverage weblog.

Photograph: Ervins Strauhmanis, Inventive Commons by way of Flickr