Blogs Eliminating Maine's income tax: A boon to wealthy Mainers, will hurt everyone else
Eliminating Maine's income tax: A boon to wealthy Mainers, will hurt everyone else
Categories: Maine's Economy, Taxes and Budget
Tags: Economy, Income Tax, Property Tax, Tax Breaks, Tax Fairness, Taxes
Two weeks ago Governor LePage notified lawmakers of his intention to amend Maine's constitution to eliminate the state's income tax by 2020. This may mean the governor has thrown in the towel on his budget proposal that significantly reduces Maine's income tax and pays for it by increasing sales and property taxes. The response to the governor's original tax plan among members of his own party has been tepid at best, and now that Democratic lawmakers have stolen some of the governor's thunder with their A Better Deal for Maine plan, he seems eager to reclaim center stage with this latest gimmick which members of the legislature's joint committee on taxation will hold public hearings on tomorrow.
Eliminating Maine's income tax is a bad idea. Here are my top 5 reasons why:
It's a huge giveaway to the wealthy. The top 1% 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% of the total amount. Meanwhile, middle-income Mainers – 140,000 households with incomes between $38,000 and $60,000 – will get a $900 income tax cut on average and account for less than 8% 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 $1.7 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.
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. 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.
If it's true that the governor is backing away from his current budget plan, in part, for lack of support from his own party, that 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. Governor LePage's latest proposal to enact a constitutional amendment to eliminate Maine's income tax seems little more than a gimmick that will provide good fodder for future campaigns, but offers little substance in promoting real solutions for hard working Mainers.
Garrett provides oversight and guidance for MECEP's policy development, research methodologies, and analytical techniques, forming conclusions and determining policy solutions. Garrett has extensive experience in economic research, policy development, community economic development, and philanthropic fund management. He holds a master's degree in public affairs from Princeton University with a concentration in economics and public policy analysis.