Taxing the proceeds generated by wealth — such as capital gains, dividends, and passive business income — through a new Wealth Proceeds Tax is a simple, shovel-ready way for Maine to raise hundreds of millions in new revenue and improve the fairness of the tax system, according to a new report by the Institute on Taxation and Economic Policy (ITEP).
“When wealth grows faster than wages, our communities fall behind,” said Maura Pillsbury, Tax Policy Analyst at the Maine Center for Economic Policy. “The Wealth Proceeds Tax makes sure Maine’s prosperity is shared, funding the care, housing, and opportunity Mainers deserve now and in the future.”
Key findings
- Substantial revenue potential: A 4% Wealth Proceeds Tax modeled on federal rules could raise more than $99.7 million a year for Maine; an enhanced version would raise $133.9 million a year.
- Taxes the wealthy, not the middle class: About 55% of the new revenue would come from households with incomes over $1 million; only 3.1% of taxpayers in Maine would owe any tax.
- Fairer treatment of wealth and work: Most of the income generated by wealth currently faces effective federal tax rates roughly 40% lower than wages and salaries. A state Wealth Proceeds Tax would help correct this imbalance.
- Simple to implement: Maine can piggyback on federal tax filings, minimizing administrative costs for both taxpayers and Maine Revenue Services.
- Minnesota already leads the way: The state enacted a 1% Wealth Proceeds Tax in 2023 using a straightforward law just 223 words long.
“States have an untapped opportunity to tax extremely wealthy families,” said Sarah Austin, ITEP Senior Analyst and co-author of the report. “The federal government already defines what counts as wealth-derived income, so states can easily adapt that framework to make their tax codes fairer and more robust.”
Creating a state Wealth Proceeds Tax is simple. Maine can piggyback on the federal Net Investment Income Tax (NIIT), which is a 3.8% levy on the investment returns of high-income households first implemented in 2013. Using the NIIT as a starting point allows states to design new taxes with minimal administrative burden and maximum impact.
Nationwide, nearly three-quarters of all Wealth Proceeds Tax revenue would come from millionaires. Households with incomes under $250,000 for married couples (or $200,000 for single filers) would not pay the tax.
Taxing wealth-derived income would improve tax equity, reduce inequality, and provide a new, stable revenue source for Maine.
“For too long, our tax systems have favored wealth over work,” said Carl Davis, ITEP’s Research Director and co-author of the report. “State Wealth Proceeds Taxes would take a major step toward correcting that imbalance.”