One of many little-noticed outcomes of the Nov. 8 election – not less than in Maine – was the vote on referendum Query 1 that handed in Massachusetts.
After many years of attempting, Query 1 constitutionally amended the Bay State’s 5% flat revenue tax fee with a 4% surcharge on incomes above $1 million, making an efficient high fee of 9%.
Why is that vital for Maine? As a result of for many years, tax coverage right here has been pushed by the alternative premise: the perceived want to cut back the highest revenue tax fee as a result of it supposedly made Maine “uncompetitive.”
The identical forces drove the “Reagan revolution” that dramatically lowered revenue taxes and was alleged to speed up financial development by placing extra capital in personal fingers. It didn’t.
Decrease high charges did dramatically enhance revenue inequality, with personal fortunes – like CEO pay – rising stratospherically. Lastly, what went up is coming down.
The primary signal was profitable implementation of President Biden’s 15% minimal company tax, which brings in billions and prevents firms like Apple and Amazon and Google from “off shoring” income and in any other case lowering their tax legal responsibility to zero, or close to it.
The Massachusetts vote is equally important for New England, and particularly Maine. In the course of the early years of the century, legislative Democrats united across the thought of bringing down Maine’s high fee, then 8.5%, nearer to a flat fee of 5%.
The hassle led to political catastrophe. Democrats pressured by way of a dramatic growth of the gross sales tax that introduced the highest fee to six.5%. Republicans instantly launched a profitable individuals’s veto try that nullified it in 2009.
Though the plan was revenue-neutral, all the main target was on the gross sales tax growth to providers, not on lowered revenue tax charges. That in flip facilitated the election of Paul LePage in 2010 on an anti-income tax platform which he pursued for eight years and talked about once more in his 2022 comeback try.
Because it stands, the highest fee was lowered in two steps from 8.5% to 7.15%, whereas the gross sales tax went up from 5% to five.5%. Has something been achieved?
The fervor behind revenue tax discount, such because it was, centered on two factors: Massachusetts’s decrease fee, and the idea that rich individuals “store round” for a spot to stay based mostly on state tax charges.
The primary objection has been eliminated and the second, it seems, was a delusion – although one extensively believed.
There are few research that think about such residency selections. However one, ingeniously, mixed Census and IRS information to trace relocations by high earners between New Hampshire, with no broad-based revenue tax, and Maine.
The outcomes: Extra millionaires moved from New Hampshire to Maine than in the other way.
This solely is smart. Individuals with cash can select to stay wherever they need; state revenue tax charges, far decrease than the federal tax, simply don’t make that a lot distinction.
In the meantime, there are few issues extra standard throughout the political spectrum than imposing larger taxes on those that can most afford to pay them, whereas giving these with little a break.
Beginning within the Nineteen Nineties, states elevated consumption and gross sales taxes, particularly on cigarettes, which might be extremely regressive, that means they bear extra closely on the poor than the wealthy.
Most individuals don’t observe the small print of tax coverage, however they know an unfair system after they see it, and that’s what we’ve created.
Maine as soon as had a extremely progressive revenue tax. The primary model, enacted in 1969, began at 1% and rose regularly to six%. Because it sharply lowered property taxes, it was so standard {that a} 1971 referendum to abolish failed by a shocking 3-1 margin.
I’ve seen no proof Mainers have essentially modified their minds since then. Nobody likes paying taxes, however since we should pay to get providers we wish and wish, we should always have a good system to assist these wants.
After the Massachusetts vote, Maine now not has any drawback over revenue tax charges, and loads of room to revive one thing nearer to the unique, extremely standard, progressive tax.
Not that it is going to be straightforward, or easy, because the 2009 debacle demonstrated.
However a well-qualified, well-funded fee to review reform, if created by the Legislature in 2023, might lastly recapture some bipartisan floor on a problem dominated by black-and-white rhetoric. A invoice, anybody?
The outcomes ought to go on the statewide poll, as a result of any plan will seemingly find yourself there anyway. It might be refreshing to see a substitute for Maine’s much-amended, crazy-quilt income system obtain a real check.
It could be the one approach to give individuals a tax system nearer to what they really need.
Douglas Rooks, a Maine editor, commentator and reporter since 1984, is the creator of three books, and is now researching the life and profession of a U.S. Chief Justice. He welcomes remark at [email protected]
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