Governor, Democrats split on regressive or progressive tax changes to close budget gap

Yahoo

28-02-2025

Maine Gov. Janet Mills enters the House chamber for the annual joint State of the Judiciary address on Feb. 25, 2025. (Photo by Jim Neuger/ Maine Morning Star)
While Democratic Gov. Janet Mills has proposed a number of largely regressive taxes, which have a greater impact on low earners, some Democratic legislators are alternatively pushing for a model that taxes the wealthy more.
Mills' plan to increase taxes on goods including cigarettes, cannabis and streaming services are flat rates, meaning lower-income groups would pay a larger proportion of their income than those who make more. Republicans have used the critique that these taxes would hurt low-income Mainers when pushing back on her plan.
Instead, some legislators want to see the state tax the wealthy and corporations at higher rates, creating new tax brackets to establish what they view as a fairer system overall.
But progressive groups say such changes, at least as currently proposed, fall short of helping the lowest income Mainers, which is one of the reasons Mills vetoed a similar plan last session even after it garnered bipartisan support.
In her State of the Budget address last month, the governor also argued that income tax changes would discourage business investment that helps the economy, a key objection echoed by industry groups during a public hearing Thursday for the latest iteration of that proposal.
Mills' tax proposals, which also include increases for ambulance services and pharmacies, are part of her effort to close the $450 million shortfall the state is projected to see over the next biennium. Lawmakers have proposed a handful of alternative progressive taxes aimed at doing the same.
These state proposals also come as new tax breaks could be coming for the wealthiest Americans at the federal level, which members of Maine's Taxation Committee requested more details on as they deliberate possible adjustments. So far, congressional Republicans have backed a plan that calls for $4.5 trillion in tax cuts over the next decade, including renewing those skewed to the rich that were instituted during President Donald Trump's first term, which are set to expire at the end of the year.
Among the new state-level tax proposals is a 'millionaire tax,' similar to a law recently passed in Massachusetts to tax income over $1 million by an additional 4%. This would generate an estimated $108 million in annual revenue, according to a coalition known as Mainers for Tax Fairness.
'We must remember that those who benefit the most only do so because of the hard work and means of those who benefit the least,' Rep. Cheryl Golek (D-Harpswell) said during a Thursday press conference.
Golek is the sponsor of the millionaire surcharge bill, which would use funds generated to allow the state to permanently fund 55% of public education costs.
'This surcharge will help make our state 'the way life should be' for everyone,' Golek said.
Wealthy corporations profit from our small rural towns, farmers, and the money we invest in roads and public safety. They can afford to give back to the state.
– Maine Rep. Bill Pleucker of Warren
Formed in 2020 and launched in 2021, the Mainers for Tax Fairness coalition comprises a number of organizations representing progressive interests across the state, such as Maine Equal Justice, Maine People's Alliance and the Maine Center for Economic Policy. They've seen some success in the past, including with the passage of a law last session that now requires a report on the corporate income taxes paid by Maine's largest employers every two years.
Rep. William Pluecker wants to go a step farther, proposing changes to corporate income taxes in order to support the state's agricultural economy, in particular.
'In the years since the pandemic, corporate profits have skyrocketed while federal corporate tax rates have been slashed,' said Pluecker, an independent who runs a farm in Warren. 'Rather than passing those earnings along to farmers and working families, they have overwhelmingly benefited wealthy executives and shareholders.'
As farmlands shrink, Pluecker said, corporations 'from away' march in to take their places.
'Wealthy corporations profit from our small rural towns, farmers, and the money we invest in roads and public safety,' he said. 'They can afford to give back to the state.'
While Pluecker and Golek's bills have yet to be heard, the proposal this year to change the state's tax code saw mixed support during a Thursday public hearing on the bill.
'Maine has at different times had more tax brackets and tax rates, and fewer tax brackets and tax rates, but always the tax brackets were very flat and the top brackets were low,' Rep. Ann Matlack (D-Spruce Head) told the Taxation Committee. 'Maine relies too heavily on those in the middle for revenues.'
Matlack, along with five Democratic co-sponsors, proposed LD 229, which if passed would add new tax brackets and increase the threshold for the state's lower tax brackets starting in 2026.
'Many Maine people are struggling, yet we keep asking for more from those who have the least,' Matlack said. 'Instead, we should ask for more from those who have the most.'
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Maine currently has three tax brackets with tax rates of 5.8%, 6.75% and 7.15%.
The bill would increase the threshold amount of income subject to the current tax rates, making a wider breadth of middle income earners eligible for lower rates, and add three new tax brackets with rates of 7.52%, 7.15% and 8.2% for the highest earners.
That dip for the second highest bracket was puzzling to some. Maine Center for Economic Policy tax analyst Maura Pillsbury requested that lawmakers adjust it so that the tax rate increases as income increases.
Overall, Rep. Anne Graham (D-North Yarmouth) argued that this restructure would in turn decrease the need for state assistance.
'I am now serving my second term on the Health and Human Services Committee, where we help to support those who fall below the federal poverty line,' Graham said. 'I believe this bill will help people stay above that line, thereby decreasing the need for the state government to support their needs.'
This idea is not new.
Last year, Mills vetoed a bill sponsored by former Rep. Meldon Carmichael (R-Greenbush) that sought to adjust Maine's tax bracelets by adding a new top tax rate of 8.45% and expanding the lower tax brackets.
While Mills described the bill as well intentioned in her veto message, the governor said the bill wouldn't reduce the tax burden for lower-income people because of the state's many exemptions, deductions and credits that more people have become eligible for in recent years.
Pillsbury brought up this concern during deliberations of the new proposal, pointing out that upper middle class households would get the largest tax cuts because they are more likely to have income fully falling within the expanded brackets proposed.
Last year, the governor also cited possible state budget challenges if Maine were to increase its reliance on a small number of taxpayers whose income is disproportionately composed of often volatile business.
But the concern Mills already raised this year about increasing taxes on the wealthy and corporations driving away business was the main point of opposition to LD 229.
'Expanding the number of brackets and further increasing tax rates would place an undue burden on Maine's workforce, entrepreneurs, and small businesses, many of whom are already struggling with inflation, workforce shortages and economic uncertainty,' said Amy Downing, executive director of the Retail Association of Maine.
Andy Cashman, founder of the lobbying firm Resolve Government Relations, argued that those challenges could also exacerbate the housing crisis that already exists in Maine.
'Because the housing crisis is due, of course, to limited availability of housing, but also because of the affordability in general in the state, that includes both the cost of houses but also the cost of living,' Cashman said.
Many of those opposed also pointed out that Maine already has a high tax burden overall compared to the rest of the country, a ranking Republican lawmakers have emphasized in arguments against raising any taxes.
'It becomes difficult to ask these businesses who are contributing to the tax base to convince them to stay and do business in Maine when you have New Hampshire that's just south with a much more friendly tax structure,' said Nate Cloutier, who testified against the bill on behalf of Hospitality Maine and the Maine Tourism Association.
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