(The Center Square) – Lawmakers are weighing plans to increase Maine's personal income tax rate to raise money for pandemic recovery, but critics say the move would cost jobs and hurt the state's economy.
One proposal, LD 495 would increase Maine’s top income tax rate from 7.15% to 8.35% and add an additional bracket at a tax rate of 11.15% on incomes over $100,000 for single filers and $200,000 for joint filers.
This measure would impact about 12% of Maine households, according to the bill's supporters, but drum up an estimated $300 million a year in new revenue.
Another bill, LD 532 would increase the top income tax rate to 7.95% and impose a tax rate of 10.15% on capital gains and dividends.
Backers of the measures, which were heard by the Legislature's Taxation Committee on Tuesday, said they would provide the state with much-needed post-pandemic revenue.
Sarah Austin, a tax and budget policy analyst at the Maine Center for Economic Policy, said the measures would "raise significant and needed revenue and would do it in a way that is fair."
"It would give Maine the resources necessary to make essential investments in families, workers, and communities for the future," Austin said in testimony.
State Rep. Laurie Osher, D-Orono, said the legislation asks "those who have the most resources to provide to their communities at a rate that is relative to their ability to pay."
"That means that less of our budget is dependent on families with lower incomes," Osher told the committee. "This is fairer than regressive taxes like the sales tax and property tax, which are assessed regardless of ability to pay. For those taxes, low- and middle-income families end up paying a larger share of their incomes than wealthy families."
Critics say the move would hurt taxpayers, cost jobs, drive away investment and hamper the state's economic recovery.
Michael Allen, associate commissioner for tax policy at Maine's Department of Administrative and Financial Services, said the proposals would give Maine one of the highest income tax rates in the nation.
"These proposals come at a time when the Maine economy is struggling to cope with the impact of the pandemic," Allen wrote in testimony submitted to the committee. "While we are seeing some positive signs, avoiding tax increases of this magnitude is an important component in well positioning the state to economically rebound quickly and strongly."
David Clough, state director for the Maine chapter of the National Federation of Independent Business, said his group opposes the proposals because they would "significantly increase taxes on thousands of Maine small business owners, because the income of most small businesses is passed through and taxed on the owners’ personal 1040 tax return."
If either of the bills reach Gov. Janet Mill's desk, they are likely dead on arrival. Mills, a Democrat, has vowed not to approve any wholesale tax hikes during the pandemic.