NEW REPORT: Maine reaches new milestone on the road to tax fairness

Mainers who earn the least will no longer pay more of their income to taxes than those who earn the most

AUGUSTA, Maine — Starting in 2020 and for the first time in decades, the Mainers who earn the least will no longer pay a larger share of their income to state and local taxes than those who earn the most, according to a policy brief published today by the Maine Center for Economic Policy.

This milestone in tax fairness is the result of several policies enacted by the Maine Legislature this year. These policies reduced taxes for the bottom 40 percent of Maine earners, who previously paid a higher average effective state and local tax rate than the top 1 percent.

“For decades, the wealthiest Mainers have paid less of every dollar they earn to taxes than those who earn the very least. Now, finally, that injustice in our tax code has been corrected,” said Sarah Austin, a MECEP policy analyst and the report’s author. “As a result, Mainers who are hurt the most by income inequality and the rising cost of living will have more money in their pockets to help make ends meet.”

This victory for tax fairness is the result of three specific tax policies enacted this year:

  • an expansion and modernization of Maine’s Earned Income Tax Credit, or EITC;
  • a boost to the Property Tax Fairness Credit, or PTFC; and
  • an increase to the Homestead Exemption.

The policy brief describes how those three policies reduce taxes and, in the case of the EITC and PTFC, will lead to larger state tax refund checks for low- to moderate-income families. For some filers, it could mean an additional $500 during tax season to help cover the increased cost of essentials such as health care or child care, or to pay for things that make it easier to keep working, such as car repairs.

This year’s tax policy changes add Maine to a small group of states that have achieved this basic measure of tax fairness: In 2018, according to the Institute on Taxation and Economic Policy, only five states and the District of Columbia had tax codes in which the bottom 20 percent paid a lower average effective tax rate than the top 1 percent.

While the tax policies enacted this year moved the state toward a fairer tax system, there are still problems to solve in Maine’s tax code to reverse the damage from years of tax cuts that primarily benefited the wealthiest.

For example, Mainers at the middle of the income distribution will continue to pay a higher share of their income to taxes than those at the top. And current state tax policies still leave the state without adequate revenue to fund core public goods such as education and local services.

“As we celebrate this milestone, MECEP is looking ahead to the policy solutions that will create a tax system that’s fair to Mainers and adequate to our state’s needs,” said Austin.

Click here to read the full policy brief.