Maine’s tax code is antiquated. It is uncompetitive regionally, nationally and globally. This is not some closely guarded secret. Working Maine families, small business owners and our senior citizens all know it. Unfortunately for readers of the Bangor Daily News, this paper’s editorial board doesn’t seem to fully appreciate this fact.
A recent editorial on the governor’s tax reform plan was narrow in focus, misrepresented important facts and ignored the broader aspects of the governor’s plan that directly benefit Maine families. It also ignored this paper’s support for previous tax reform initiatives.
The editorial board seems to believe Maine’s lack of tax competitiveness is a myth, citing two reports by the Council on State Taxation. Unfortunately, these focused on taxes on new investments and how states administer their tax laws. Another COST report finds that Maine has the fifth highest total effective business tax rate, while Forbes recently pegged Maine as the second worst state to do business in — in large part because of our high tax burden. The nonpartisan Tax Foundation noted that the governor’s plan, if fully implemented, would improve Maine’s ranking in their State Business Tax Climate Index from 33rd to 23rd.
Maine is a small business state. Unlike their corporate counterparts, the majority of our small businesses pay their taxes on an individual tax return. That is to say your mom-and-pop business reports income and pays their taxes using the same tax form and tax rates as Maine families.
Our top marginal individual income tax rate of 7.95 percent is ninth highest in the country. Were it not for Vermont, New Jersey and New York, we would have the highest top marginal tax rate on this side of the Mississippi River. Their top individual rates kick in at more than $400,000, $500,000 and $1 million of taxable income, respectively. Maine’s top rate starts at $20,900.
Maine’s tax rate is particularly punishing to working families because it kicks in at such a modest income level.
According to a tax burden report by the District of Columbia, a family of three, living in Portland and earning $25,000 a year, experiences a tax burden that is 25th highest in the nation. That ranking jumps to 11th highest when their income doubles to $50,000 and continues to rise steadily as their income increases. Part of the reason for this dramatic increase is how quickly our income tax begins to increase and the low threshold for our top rate to kick in.
Maine has so much to offer to individuals and young families. However, people are more mobile today than ever before, and Maine is not the only place in the country with good schools, friendly neighbors, scenic views and a vibrant culture. Like it or not, we are competing with other states for residents and businesses, and our high tax burden is a deterrent that prevents families from moving here and our best and brightest from staying here or returning upon graduation from college. We are one of two states in the country with a natural population growth that is negative. Gov. Paul LePage recognizes these challenges and has proposed a bold tax reform proposal that aims to make Maine more competitive.
LePage has a plan for our state that will make Maine a more prosperous place in the short and long term. We want to attract individuals and businesses to Maine. But we also have to look after the individuals and businesses that already call Maine home. Under the governor’s plan, the vast majority of tax families in Maine will pay less income tax than they do. His plan takes responsible steps over the course of the next four years to improve our competitive position.
The reduction of income tax rates, repeal of the estate tax and making military pensions exempt from the income tax are targeted at making Maine an attractive state for young families, military retirees seeking a permanent place to begin a new career and older retirees who are looking to contribute in many ways to our state and communities.
We are all familiar with the current tax system. While the status quo may be familiar and comfortable, it also is an impediment to future economic growth.
The tax code is a powerful thing. It can be used to incentivize certain actions or discourage specific activities. The LePage tax reform and relief plan is part of the governor’s pro-growth agenda that attempts to remove the barriers to Maine’s economic growth.
Richard Rosen is commissioner of the Maine Department of Administrative and Financial Services.