By Maura Pillsbury and Mark Shaffer
The 2026 legislative session delivered major milestones in tax fairness, including:
- passage of a millionaire tax signed by the governor into law as part of the supplemental budget
- decoupling from many regressive provisions in HR 1, the federal Republican megabill
- progress on other promising tax policies that can reshape Maine’s tax code
- further expansion of the property tax fairness credit
Historic progress on fair taxation
The legislature made major progress on fair taxation by passing a millionaire tax — a 2% surcharge on income over $1 million for single filers and $1.5 million for heads of household and those married filing jointly. The State estimates this policy will bring in over $140 million in the next biennium, supporting important services like health care, education, and child care.
This is the result of years of dedicated work and advocacy by organizations and legislative leaders in Maine, and a historic moment in the fight for a more progressive, fair tax code.
Work remains to make Maine’s tax code fairer
Despite passage of the landmark millionaire tax, Maine’s tax system is still regressive overall. Before changes in the new budget, the lowest 20% of earners paid 13.3% of their income in taxes, the middle class 10.3%, and the top 1% paid 9.4%. The richest Mainers paid 3.9% less of their income in taxes than the poorest Mainers and 0.9% less than the middle class.
The new surcharge and expansion of the property tax fairness credit will help address inequality. But analysis from the Institute on Taxation and Economic Policy indicates these will only increase the tax rate of the top 1% by about 0.35%. The bottom 20% will see a decrease of 0.26% on average. While such changes will narrow the gap between the effective tax rate of the top 1% and the bottom 20%, but the gap will endure.
LD 229 and LD 1879 are tax fairness policy options with broad legislative support that the legislature should consider in the future.
LD 229 proposed lowering taxes for 70% of Mainers while adding two new higher brackets asking the rich to pay more. This bill would have raised $85 million for important priorities.
LD 1879 proposed increasing the top tax rate on corporate income over $3.5 million by just over 1%. This bill received bipartisan support in the House and would have raised $50 million with $30 million going to support agriculture, a critical Maine industry. The funds for agriculture are particularly important after the failure of a $45 million bond to fund agricultural programs. LD 1879 promotes both tax fairness and critical Maine industries by raising taxes on larger businesses.
Decoupling from federal tax changes saved millions
The decision whether to conform with tax changes at the federal level was a major undertaking for lawmakers. HR 1 includes dozens of tax changes, many which are major windfalls for the wealthy and big corporations, and some which are retroactive to 2022. Conformity decisions had the potential to impact the state budget by hundreds of millions of dollars each year.
Ultimately, the legislature chose to conform with many of the smaller provisions, while decoupling from several larger elements that would have major fiscal implications for the state budget. In total, the cost of conformity is approximately $48 million in this biennium and $132 million in the next budget cycle. The legislature decoupled from other federal tax changes that would have cost the state hundreds of millions more.
How Maine handled federal tax changes
| Decoupled | Conformed |
|---|---|
| • 100% depreciation deductions • Opportunity Zones • Qualified Small Business Stock exemption • Partial exemption from tax on tips and overtime • Deduction for older residents • Car loan deduction • Charitable deduction for non-itemizers | • Increased standard deduction • Research and experimental expenses deduction [see note 1] • Increased limits for expensing business assets • Business interest deduction |
Worldwide combined reporting floundered
After years of legislators pursuing more information on the potential impacts of worldwide combined reporting in Maine — which would prevent international tax avoidance by corporations — the proposal received greater support than ever this session. Several members of the Taxation Committee had voted for LD 1939 but it ultimately received an “ought not to pass” report out of the committee which was accepted in both the House and Senate.
Due to lack of publicly available tax data the potential economic impact of worldwide combined reporting cannot be determined, but for the first time a fiscal note was created2 which estimated a cost of over $600,000 for implementation due to additional work for Maine Revenue Services (MRS) staff. Vaguer was the potential dollar impact of the policy itself; the fiscal note stated it would either raise or lose a small amount of money.
MRS has asserted other state policies flag most potential international tax avoidance, but with limited staffing and enforcement and a lack of publicly available data it remains unknown exactly how much this policy could bring in and how much multinational corporations are avoiding paying in taxes by hiding profits in low-tax jurisdictions.
Property tax task force had limited impact
Last year the legislature created the Real Estate Property Tax Relief Task Force, which met six times and released a preliminary report in January. The task force must release its final report by December, and plans for 2026 meetings will be determined after a May report.
The report identified topics to address including the Maine constitution’s requirement that all property tax be assessed equally, insufficient fees for mandated municipal property tax abatement programs, the decline in commercial property taxes during the pandemic, and moving to county level rather than municipal assessments.
The report unanimously recommended enabling monthly tax payments, increasing communication of relief programs, and encouraging local partnerships. They also supported legislative solutions including working groups to analyze relief programs, reviewing previous reports, and altering the property tax fairness credit. A majority of the group supported legislative recommendations to increase the homestead exemption (pinning it to inflation), increase municipal reimbursement to 100% for property tax exemptions mandated by the state, and increase funding and regionalization of county jails.
Unanimous support for the property tax fairness credit shows clear recognition of the need for targeted relief. With income requirements and a mandate that the property be a primary residence, the credit helps make property taxes more progressive. The legislature acted on this in the budget, increasing the credit for those under age 65 from $1,000 to $1,500.
While these proposals will help incrementally reduce property taxes and address the sustainability of the property tax system as a source of revenue, broader and more systemic changes are needed. The continued work of the task force is an opportunity to more fully address Maine’s reliance on property taxes and their increasing unaffordability for Mainers.
Notes:
[1] The state extended its alignment with federal law over a longer timeline to decrease up-front costs, so it is not in full conformity with this provision.
[2] https://legislature.maine.gov/legis/bills/bills_132nd/fiscalpdfs/FN193902.pdf