Impacts of proposed income tax rate reduction

House and Senate Republicans are demanding income tax cuts be part of the budget, and Democrats in the legislature were right to make sure they didn’t have the tools to threaten a state shutdown to get them. As the legislature prepares to pass a current services budget to avoid a stalemate in June that could result in a shutdown, Republican leaders are pushing to include language that would reduce the rate for Maine’s lowest tax bracket from 5.8% to 4.5%. This is a bad policy idea.

Maine has a long history of attempts to roll back the income tax — and these proposals have always predominately benefited the wealthiest taxpayers. After former Governor Paul LePage’s initial income tax cut in 2011 that disproportionately went to wealthy individuals and was paid for by cuts to important safety net programs as well as increases in sales and property taxes, Republican lawmakers advocated year after year for further cuts that would skew our tax code in favor of the rich and powerful. The Maine Republican Party attempted to pursue this policy through a referendum in 2015, but failed to get enough signatures to qualify for the ballot.

This time, Republican leaders in the legislature are proposing changes to the lowest income bracket rather than the top. This still represents a fundamentally wrong-headed approach to the current budget. It ignores two important points:

First, cutting the tax rate for the lowest income bracket largely would not benefit people most in need — and actually would provide a greater benefit to higher earners. Lower income families get a smaller benefit because Maine’s standard deduction and targeted tax credits make it less likely for them to have enough taxable income that reaches the upper boundary of the lowest bracket. According to analysis by the Institute on Taxation and Economic Policy, there is little or no benefit for people making under $25,000 and the households with income over $150,000 will see the biggest tax cut. In short, the wealthiest families will see the most benefit while people who face the biggest economic challenges will see either nothing at all or too small of a benefit to make a difference.

Second, we don’t have room for tax cuts when the state should be solving the unmet needs of our current moment. Whether it’s the housing crisis, opioid epidemic, rising energy costs, a deteriorating direct care workforce, or lack of child care, we have problems that we can only face with effective leadership at the state level, not as individuals or even as communities. And solving these issues requires funding. Giving the largest tax cuts to people who do not need them while ignoring these problems would be a failure by the legislature to meet the needs of their constituents. 

Using the tax code to help people who need it should be done with strategic investments in targeted credits, not rate cuts that will put money back in the pockets of wealthy households. There has been remarkable progress on this front at both the national and state levels with expansions of programs like the Child Tax Credit dramatically reducing child poverty across the country and boosts to the state Earned Income Tax Credit giving a helping hand to Maine families struggling to make ends meet. The state should continue down this path by working to make these credits worth more money and available to more Mainers.  

The legislature and voters have rejected many attempts to pass income tax cuts at the expense of the common good over the last decade, and Maine Center for Economic Policy urges them to continue to hold the line.