(The Center Square) — A proposal to tax Maine's top earners is working its way through the state Legislature, but critics say it will hurt the state's economy as it recovers from the pandemic.
LD 498 would add a 3% surcharge to raise Maine’s income tax for individuals with taxable income of $200,000 or more a year. This new surcharge would drum up an estimated $209 million a year in new revenue for the state.
The measure was narrowly approved this week by the Legislature's Taxation Committee in a 7-6 vote that went along party lines, with Democrats backing the proposal.
In discussion ahead of the vote, Sen. Ben Chipman, D-Portland, co-chairman of the committee, said he sees the proposal as a part of a broader discussion about fairness of Maine's income tax system and whether the state should move to adopt a progressive system that’s based on an individual's ability to pay.
"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," Chipman said.
Republican committee members criticized the push to tax the state's wealthiest, saying it would hurt taxpayers, cost jobs, drive away investment and hamper the state's economic recovery.
Sen. Matthew Pouliot, R-Augusta, the ranking Senate Republican on the panel, said it's "unfathomable" that lawmakers are even talking about tax increases in the wake of a pandemic.
"We have to reprioritize our spending in state government," he said Tuesday. "What we really have is a priority problem in Augusta, not a revenue problem."
The measure has drawn strong opposition from the business community, which says it would hurt the state's competitiveness and encourage wealthy taxpayers to leave for other states.
"Raising both the corporate and individual income tax rates to astronomical heights is no way to rebuild our economy after the pandemic and one of the worst fiscal crises in a generation," Greg Dugal of Hospitality Maine, which represents the state tourism industry, told lawmakers during a recent hearing on the bill.
Dugal said taxing the state's top earners who drive away investment would make the state "a less desirable place to relocate to and quite frankly to live."
"We need a solid tax base of people earning good salaries to be able to fund the Maine state government and provide all the services that people feel are important to everyone’s wellbeing," he said.
To be sure, the taxation committee also rejected several other wealth tax proposals, including one that sought to 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.
The bill now heads to the full Legislature for consideration but it's fate is anything but certain. It also faces a likely veto from Gov. Janet Mills, a Democrat who has pledged not to increase taxes.
Michael Allen, associate commissioner for tax policy at Maine's Department of Administrative and Financial Services, said adopting the changes 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 to the committee in opposition to the proposals. "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."