Committee rejects tax bills but may launch review of income tax rates

·5 min read

May 18—The Legislature's Taxation Committee voted down 9 out of 10 bills Tuesday that would raise more tax money from top wage earners by increasing income tax rates or adding surcharges.

But that doesn't mean the debate over Maine's tax code and whether higher-income earners should pay more is over.

Kept alive was a bill that Rep. Maureen Terry, D-Gorham, the House chairwoman of the committee, said would be used as a vehicle to continue a more in-depth examination of Maine's income tax system. The bill would add a new top income tax bracket of 7.95 percent for individuals making over $300,000 and couples earning more than $600,000. It would also increase the homestead exemption for property taxes from $25,000 to $55,000 by 2024.

The committee narrowly voted to defer immediate action on the bill and decide later whether to carry it over into the next legislative session for further debate.

The tax conversation in Maine comes in the context of a national debate over whether Congress should approve a proposal by President Joe Biden to increase the federal corporate tax rate to pay for sweeping infrastructure upgrades. Federal corporate income taxes were slashed from 35 percent to 21 percent under former President Donald Trump.

Terry said she has been poring over the bills and Maine's tax code the last several weeks and looking at what she called the "fairness level of who takes the hardest hit when it comes to our tax system."

She questioned whether a tax rate of 7.15 percent for all who earn more than $50,000 a year was fair, and whether Mainers with low incomes should have to pay taxes at all.

"I think we need to make some tweaks," she said, but she noted that a tax system review would be more difficult when lawmakers have been forced into remote meetings and awkward schedules by the pandemic.

Over the summer, Terry said, the committee could work with the Maine Revenue Service and the state economist to "really dig into what these numbers mean to families in Maine and to make adjustments so we are not the highest tax rated state in the country, or fourth or eleventh or whatever it is but to just make it fair for everybody."

The bills before the committee would have done everything from bumping the state's top tax bracket to more than 12 percent to creating a flat 5 percent tax for all. Three of the measures also created surcharges on high earners. Two of those would be permanent, mirroring a statewide ballot measure that was passed by voters in 2016 but later overturned by the Legislature following a state government shutdown.

The third surcharge bill, offered by House Speaker Ryan Fecteau, D-Biddeford, would have created a temporary surcharge on high wage earners, using the proceeds from the bill to pay grants to essential workers on the frontlines of the COVID-19 pandemic for 2020 and 2021.

The vote to table Terry's bill and add it to a list of bills to be considered in the next session of the Legislature in 2022 split 6-5 along party lines, with Republicans opposing it. The votes to kill the remaining bills were mostly unanimous and bipartisan, with only one in the group drawing a 10-1 split vote.

That measure would have created a 5 percent flat income tax for all wage earners in Maine. It also would have punched a $500 million a year hole into the state's budget, based on an estimate from the Maine Revenue Service.

In arguing against most of the bills, Republicans made the case that state revenues have continue to grow even after a series of state income tax cuts made under former Republican Gov. Paul LePage lowered the state's top bracket to 7.15 percent. They also said when Mainers are allowed to keep their money they spend it in Maine, providing jobs and supporting local economies that generate more tax revenue.

"It's almost unfathomable to me that we are even wasting time discussing tax increases right now," said Sen. Matthew Pouliot, R-Augusta, the ranking Senate Republican on the committee. Pouliot, an area real estate developer, said he had just sent off his $58,000 tax bill to the federal and state governments, and had he been able to keep more of that money it would have been reinvested in the local economy.

"We have to reprioritize our spending in state government," Pouliot said. "What we really have is a priority problem in Augusta, not a revenue problem."

Other Republicans on the committee put it more bluntly.

"Maine needs to go on a diet," said Rep. Bruce Bickford, R-Auburn.

The Democratic sponsored measures would have raised increasing amounts of revenue for the state each year, ranging from about $62 million to more than $359 million.

Sen. Ben Chipman, D-Portland, the Senate chairman of the committee, said Republicans were missing the point of a progressive income tax system that's based on an ability to pay.

"I do think the tax brackets are not fair and they are not spread out very well," Chipman said. "Most people are essentially paying the same rate across the board." He said he supported a review of the state's income tax system.

Chipman said his interest wasn't in trying to necessarily find a way to bring in more money to the state but create a fairer system. When asked by Pouliot what fair meant in the context of the discussion, Chipman said, "People paying what they can afford to pay. People paying based on ability. If someone is making $1 million a year they can afford to pay a higher tax rate than somebody who is making $20,000 a year."

It is unclear exactly when the committee will revisit the issue but it is unlikely to happen before the end of the current special legislative session, which is set to end in June.