2 days ago
Lawmakers pass tax increases on corporations, highest earners, but governor remains an obstacle
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The Maine Legislature on Thursday passed measures that would raise the tax rate on corporations and alter the state's tax brackets to provide relief for the middle class. Another proposal that specifically sought to raise taxes on millionaires, however, was rejected.
All of these were determined by a handful, or in some instances just one, vote. And with such narrow margins, the chambers will be unlikely to overcome a potential veto from Gov. Janet Mills, who has already expressed her opposition.
The advance of these tax changes comes amid the Appropriations and Financial Affairs Committee finalizing a budget plan to send to the Maine House of Representatives and Senate for approval, and the potential for increased tax revenue could be consequential.
Advocates and some Democratic lawmakers specifically pushed for the Legislature to adjust taxes as a means to continue to fund the health and child care programs that Mills proposed cutting in her budget proposal.
So far, only some of those proposals have made it into the committee's budget plan. Notably, the committee rejected Mills' suggested cuts to childcare worker stipends and Head Start. Meanwhile, the committee included some initiatives to save or raise money, such as rolling back funding for mental health programs and pensions, as well as increasing the cigarette excise tax.
Both chambers backed LD 229, which would increase the base of the state's tax brackets. It would do this by both increasing the number of tax brackets and by adding a top tax bracket for high income earners.
Maine currently has three tax brackets with tax rates of 5.8%, 6.75% and 7.15%. The top tax bracket is currently for any individual making more than $61,600. The bill would add two more brackets for the highest earners, which would be taxed at 7.75% and 8.95%.
In the Senate, several critics of the bill said that raising tax rates on the wealthiest individuals would drive investors away. Though tax committee co-chair Sen. Nicole Grohowski (D-Hancock) said the state's tax code is currently 'upside down,' asking more proportionately from earners in the middle than those at the top. 'This bill is here to fix that,' she said.
The ideas in this bill are not new, and could lend themselves to a veto, again.
Mills' administration testified against the bill during its public hearing, reiterating many of the same concerns the governor had when she vetoed a bill last year 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 describing 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.
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.
The other bill both chambers backed is LD 1879, which would raise the tax rate on corporations to support the agricultural economy, though the Mills administration is also opposed to this plan.
Specifically, it would increase the top marginal corporate income tax rate to 10% on income over $3,500,000 for tax years beginning on or after January 1, 2026. This revenue would then be distributed to various funds and programs, such as the dairy stabilization support fund, agricultural marketing loan fund and business recovery and resilience fund, among others.
Michael Allen, associate commissioner for tax policy in the Department of Administrative and Financial Services, testified against the bill on behalf of Mills during the public hearing, noting that it would make Maine's top marginal corporate income tax rate among the highest in the country. He also noted a number of technical concerns with the proposal.
While both chambers have now passed LD 1879, it took several attempts for them to get on the same page.
While the House initially passed this bill 77-67, the Senate failed to pass it with a 13-18 vote and subsequently voted against it without a roll call, returning it to the lower chamber in nonconcurrence.
On Wednesday, House Minority Leader Billy Bob Faulkingham (R-Winter Harbor) tried to recede and concur but his motion failed 65-78. The House then insisted on its vote to pass the bill and the Senate tabled it when it was sent back to that body on Wednesday.
But on Thursday the Senate changed course, voting 18-16 to recede and concur with the House.
Both chambers narrowly rejected what is commonly referred to as a 'millionaire's tax.' The proposal, LD 1089, was amended to a lower surcharge than initially proposed.
It would place an income tax surcharge of 2% on the portion of a resident's taxable income beyond $1 million for single filers, $1.5 million for heads of households and $2 million for married people filing jointly. This revenue would then go toward funding public K-12 education.
Originally, the bill sought to tax income over $1 million by an additional 4%, which would have mirrored a law recently passed in Massachusetts.
The House failed to pass the measure 70-72 on Wednesday before voting against it without a roll call. The Senate ultimately did the same Thursday, after an initial vote to pass it failed 17-18.
The Mills administration has also testified against this bill.
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