NEW REPORT: Maine Work Credit will boost working Mainers’ income by $91 million, help un-rig our tax code

AUGUSTA, Maine — A new proposal before the Maine Legislature would improve Mainers’ economic security and boost the state’s economy by putting an additional $91 million in the pockets of working families.

The bill, LD 1491, would create the Maine Work Credit — a refundable tax credit that will give low- and middle-income working Mainers a larger refund on their tax return. Roughly 177,000 Maine households, representing about one-quarter of the state, would benefit from the credit.

“All of us benefit when working people can keep up with basic spending,” said Sarah Austin of the Maine Center for Economic Policy, who authored a new policy brief about the bill. “But growing income inequality, rising costs of basics such as child care and health care, and a tax code that favors the wealthiest leave many Mainers struggling to get ahead even when they’re working hard. The Maine Work Credit will help Maine’s working families meet today’s economic challenges by putting extra money in their pockets.”

The Maine Work Credit would replace Maine’s Earned Income Tax Credit, or EITC. It would improve on its predecessor in four key ways:

  • Increasing benefits for eligible households: Maine’s EITC is based on a much larger federal credit of the same name. Eligible Mainers receive a state credit worth 5 percent of their federal EITC. That makes Maine’s credit one of the smallest in the country. The Maine Work Credit will be worth 30 percent of the federal EITC, which will make it easier for eligible Mainers to pay their bills.
  • Expanding eligibility to middle-class families: Maine’s EITC does a lot of good for low-income working Mainers, but middle-class families are struggling too. All families with children will be eligible for the Maine Work Credit on income up to $55,000. Childless adults would be eligible on income up to $27,000.
  • Recognizing hard work in the home and the classroom: Low-income college students and caregivers work hard but don’t receive a paycheck for it. Their work has tremendous economic value, and the Maine Work Credit will recognize and reward their efforts with a minimum credit worth half the maximum benefit.
  • Spreading benefits throughout the year: The bill would establish a study to move Maine toward providing regular “Cost of Living Refund” payments based on the Maine Work Credit and other refundable credits available to low- and moderate-income families. Rather than one lump sum during tax season, families would be eligible to receive their credits as smaller payments throughout the year, helping them keep up with monthly expenses.

In addition to boosting incomes, the Maine Work Credit will improve the fairness of Maine’s tax code. Today, the top 1 percent in Maine pays a lower effective state and local tax rate than the poorest households. The Maine Work Credit would give a tax cut to the bottom 80 percent of households and would lower the effective tax rate for the bottom one-fifth of households from 8.7 percent to 4.9 percent.

“For years, the EITC has been one of the most effective, commonsense elements of our tax code,” said Garrett Martin, MECEP’s executive director. “The extra cash it provides empowers working Mainers to solve the problems affecting their families. The Maine Work Credit will do even more to put working people in the driver’s seat of their own economic security.”

Click here to read MECEP’s full analysis of The Maine Work Credit.

The Legislature’s Taxation Committee will hold a public hearing on LD 1491 at 1 p.m. Thursday, May 2.