Augusta, Maine (Tuesday, May 5, 2015) “Gov. LePage’s proposed constitutional amendment to end Maine’s income tax is a huge giveaway to Maine’s wealthiest residents that will put funding for schools and other vital services at risk,” said Maine Center for Economic Policy (MECEP) Executive Director Garrett Martin. “Repeal of the income tax will tear a $1.7 billion hole in future budgets. Eliminating all state funding for K-12 and higher education still wouldn’t generate enough savings to pay for this reckless proposal and doing so would necessitate a 40 percent increase in property taxes to maintain current spending for schools. Alternately, legislators could double our current sales tax rate and still not generate enough revenue to balance the state’s budget.”
Martin urged members of the legislature’s Joint Standing Committee on Taxationwhich holds hearing today on the governor’s proposal to reject L.D 1367, A Resolution, Proposing an Amendment to the Constitution of Maine To Eliminate the Income Tax.
“This proposal is nothing more than a gimmick that the legislature should quickly defeat so that they can get back to the task at hand – working in a bi-partisan manner to craft a two year budget that incorporates some of the best ideas from the A Better Deal for Maine plan and the governor’s original budget proposal,” Martin said. “The fact that the governor can’t even get his own party to back his current budget proposal, which reduces Maine’s income tax by a third and pays for it by raising property and sales taxes proves that there is much work to do to accomplish even modest tax reform.”
In a May 4 blog post, “Eliminating Maine’s Income Tax: A Boon to Wealthy Mainers, Will Hurt Everyone Else,” Martin outlined five reasons why eliminating Maine’s income tax is “a bad idea”:
- It’s a huge giveaway to the wealthy. The top 1 percent of Mainers – 7,000 households with incomes greater than $392,000 – will get a $61,000 income tax cut on average and account for 26 percent of the total amount. Meanwhile, middle-income Mainers – 140,000 households with incomes between $38,000 and $60,000 – will on average get a $900 income tax cut and account for less than 8 percent of the total. Of course, the $900 income tax cut for middle-income Mainers will quickly disappear in the face of property and sales tax increases required to pay for eliminating Maine’s income tax. Instead of giving huge tax breaks to the wealthy and large corporations, which eliminating Maine’s income tax will do, we should focus on fiscally responsible policies that deliver more value to the middle class.
- It jeopardizes funding for schools and other vital services. In 2019, the current income tax is expected to generate more than $1.6 billion in revenue. That’s money we will use to pay for schools, provide access to health care for seniors and people with disabilities, maintain public safety and critical infrastructure, and deliver other important services. Maine spends close to $1.2 billion on K-12 and higher education and $750 million on health care for children, seniors, and people with disabilities. Even if the governor cut all state funding for education and half the funding for health care, he still wouldn’t have enough money to cover the cost of eliminating Maine’s income tax. Rather than cut support for schools and other services, we should be calling on the wealthy and corporations to pay their fair share.
- It will trigger property tax increases. Reduced funding at the state level for schools and local services merely shifts costs to property taxpayers. This has already begun to happen. For low- and middle-income Mainers, increasing property taxes is a much greater concern than what they pay in income taxes. In addition, relying more on property taxes to fund schools and local services is a recipe for increasing inequality between wealthier and poorer parts of the state.
- It will make an unfair tax system even less fair. Low- and middle-income Mainers already pay more in state and local taxes per dollar earned than wealthy Mainers. Eliminating the income tax will worsen the situation, particularly as other taxes go up to make up for lost income tax revenue. In fact, states with the least fair tax systems in the country are those that don’t have an income tax.
- It’s a failed prescription for growing Maine’s economy. Real-world results and the academic literature lend little support for personal income tax cuts as a strategy for boosting Maine’s economy. Since Maine must balance its budget, the legislature must pay for tax cuts by cutting state services or raising other taxes. These actions will offset any benefits of the income tax cut and, even worse, may compromise Maine’s future prospects for growth. We can’t grow a strong economy when schools and workforce development programs are underfunded, vital communications and transportation infrastructure is absent or decaying, and lack of funding consistently undermines long-term efforts to improve health and protect the environment.
“If the governor were serious about eliminating Maine’s income tax by 2020, he could have put forth a proposal to do so with his budget plan,” Martin wrote. “The fact that he didn’t speaks to the challenges and trade-offs that would be necessary in order to do away with the biggest source of revenue in Maine’s tax system.” Martin added that the governor’s proposed constitutional amendment “merely confirms the fallacy that we can simply do away with our income tax at little to no cost for Maine’s people and communities.”
There is more detailed MECEP analysis of Maine’s current tax and budget deliberations available in the Tax and Budget section of our website, click here