MECEP Hails Tax Committee Vote Against Income Tax Repeal Amendment

“We applaud the committee for rejecting this reckless gimmick that would put funding for schools and other vital service at risk” 

Augusta, Maine (Wednesday, May 13, 2015) Maine Center for Economic Policy (MECEP) Executive Director Garrett Martin issued the following statement today after the legislature’s Joint Committee on Taxation voted 7-5 to reject L.D 1367, A Resolution, Proposing an Amendment to the Constitution of Maine To Eliminate the Income Tax.

“We applaud the committee’s rejection of this reckless gimmick that would have put funding for schools and other vital services at risk. Repeal of the income tax would create a $1.7 billion hole in future budgets. We could eliminate all state funding for K-12 and higher education and still not realize the savings needed to pay for this fiscally irresponsible proposal. We would have to increase local property taxes by 40 percent to maintain current spending for schools. Doubling the current sales tax rate still would not generate the revenue needed to balance the state’s budget. It’s time for legislators to get back to work on a bi-partisan budget that incorporates some of the best ideas from legislative Democrats’ A Better Deal for Maine plan and the governor’s original budget proposal. We urge them to deliver a budget that includes both responsible, fair tax reforms that benefit middle- and low-income families and raises the revenue we need to fund education, health care, and other investments that will improve our economy and create opportunity for all Maine people. 

In a May 4 blog post, “Eliminating Maine’s Income Tax: A Boon to Wealthy Mainers, Will Hurt Everyone Else,” Martin had outlined five reasons why eliminating Maine’s income tax is “a bad idea”:

  1. 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.
  2. It jeopardizes funding for schools and other vital services. In 2019, the current income tax is expected to generate more than $1.7 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.
  3. 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.
  4. 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.
  5. 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.

In a follow-up blog post on May 6, 3 Unsavory Ways to Pay for Eliminating Maine’s Income Tax,” Martin outlined the options left for legislators to fund government services without the income tax:

  1. Eliminate all state funding for K-12 education and higher education and half of state funding on health care for children, seniors, and people with disabilities. In FY2014, Maine spent close to  $1.2 billion on K-12 and higher education and $750 million on health care for children, seniors, and people with disabilities. Eliminating funding for education and cutting health care funding in half would generate enough savings to cover the cost of eliminating Maine’s income tax. If legislators don’t want to do this, they could eliminate all state employees and all other departments and agencies funded through the general fund, including the departments of agriculture, attorney general, corrections, economic and community development, judiciary, and inland fisheries and wildlife. But doing so still wouldn’t generate enough savings to cover the entire cost of eliminating Maine’s income tax.
  2. Raise property taxes by 40%. If lawmakers chose to eliminate state funding for K-12 education property taxpayers would have to fund the entire cost of educating Maine children. At current funding levels that means property taxpayers would have to contribute close to $1 billion toward education. That roughly translates to a 40% property tax increase across the state. Of course, communities that are less well-off and currently benefit from a higher share of state aid will incur even more substantial property tax increases to pay for lost state aid.
  3. Raise the sales tax rate to 11.5% and the meals and lodging tax rate to 16%. Rather than eliminate entire departments in state government or shift education cost to property taxpayers, legislators could instead choose to increase the sales tax to offset the lost income tax revenue. Doing so would require them to more than double both our current 5.5% sales tax and our current 8% meals and lodging tax.

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