Much of the debate over Question 2 on the November ballot centers on who, exactly, would get hit with a higher tax rate to boost funding for public schools.
The referendum question targets those who earn more than $200,000 a year. A substantial portion of them face the prospect of voters adding 3 percentage points to the tax rate for income over the $200,000 mark.
In effect, that income would be taxed at 10.15 percent, while the amount below $200,000 would be subject to the state’s current top tax rate, now at 7.15 percent.
Business groups opposing the proposal argue that it would hamper the state’s economy with the second-highest top marginal tax rate after California.
Supporters argue the increase for the state’s top earners would make the state’s tax code fairer and help fulfill the promise of a 2004 referendum for the state to fund 55 percent of all K-12 public education costs.
The ability to answer that question of who will pay has its limits, but a Bangor Daily News analysis of federal tax data found trends among the state’s top earners that help explain the state of the debate.
The map of who pays looks a lot like you’d expect.
Opponents of the question argue that wealthier southern Maine and coastal towns stand to unfairly benefit most from channeling more money through the state’s existing education funding formula. Proponents of the question have taken issue with that analysis, done by the Maine Education Association earlier this year to project state education distributions.
The analysis shows how 2016-2017 school funding would change if the state paid the full 55 percent of education costs. That move has a notable critic in former Education Commissioner Jim Rier, who helped overhaul the state’s school funding formula around 2005. He has argued the initiative would exacerbate existing inequities in school funding, with poorer communities such as Lewiston benefiting less from the money than towns like Cape Elizabeth and Portland.
The MEA, in a recent analysis by research director C.J. Betit, reasserted that a 2013 study found the state’s funding formula fair but not sufficiently funded.
The list of towns projected to gain the most education money in the 2016 analysis looks a lot like the list of towns that stand to pay the most under the new tax. You can probably guess those towns: Falmouth, Portland, Cape Elizabeth, Scarborough, Yarmouth and Bangor.
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Our analysis estimated more than half of the new revenue would come from tax filers in Cumberland County. Add in York and Penobscot counties, and you’ve got about three-fourths of it.
It’s tough to nail down how much Question 2 would raise, but at least 16,000 Maine filers stand to feel the tax hike.
Our analysis is based on the latest federal tax statistics of adjusted gross income, which is all income minus certain categories of deductions, not including personal exemptions and itemized deductions.
We used those statistics from the IRS because they drill down to the ZIP code level, illustrating the general contours of Maine income. But they don’t reflect state-level taxable income, leaving inexact the estimate of how many people reported state income above $200,000.
The number of filers surpassing that threshold has likely risen from the 2014 data, as federal estimates of personal income in Maine jumped sharply in 2015, up $1.1 billion. For that reason, modeling the tax increase using the federal data falls short of state projections.
Al DiMillo, a retired corporate tax director and CPA who submitted to the Bangor Daily News an analysis opposing Question 2, said the federal data are “not perfect” for sizing up the impact of any new state-level income tax, but it’s the most detailed source of information available outside of Maine Revenue Services, which has not provided that level of geographic detail.
That agency estimates the tax proposed under Question 2 would would raise about $157 million in the first year, from about 16,000 filers.
But based on the 2014 federal data, the increase comes in at a much lower estimate of $107 million, from around 17,000 filers.
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DiMillo said he estimates the number of affected filers would be closer to 20,000 by 2017, reflecting a subset of the 25,000 who reported state adjusted gross income of more than $200,000 to the state in 2014. DiMillo did not review the details of the BDN’s analysis.
If Question 2 passes, the additional tax money would go into a new education fund that lawmakers could tap, after setting allocations from the General Fund, to fully cover 55 percent of the total K-12 costs.
Whether future legislatures find a way to circumvent that funding promise is another question.