To fund shared prosperity, we must end LePage-era tax cuts for the wealthiest

For years under Gov. Paul LePage, budget-busting tax cuts robbed our state of the revenue we need to build a stronger, fairer economy. Tax cuts delivered windfalls to the wealthiest households in our state, making it harder for our schools and communities to make ends meet.

This year, we have a choice: We can keep starving our state of the revenue we need to invest in Mainers and our economy, or we can get rid of the LePage-era tax breaks and fully fund our schools, our health care, and the state and local services that empower businesses and families to thrive.

MECEP’s Prosperity Budget puts forward a plan to recoup state revenues to invest in the foundations of a strong economy. Central to this proposal is an income tax reform that re-balances Maine’s tax code and raises $154 million per year to help fund a down payment on our future.

Repealing tax breaks for the wealthiest Mainers

Changes to the income tax since 2010 will cost the state $432 million annually in the next two-year budget cycle.

Half of that revenue will be diverted directly to the wealthiest one-fifth of Maine households in the form of tax cuts. Those same wealthiest households received the lion’s share of federal tax cuts enacted in 2017. These lopsided tax cuts for the wealthiest have turned our tax code upside down, so that the top 1 percent pay a lower share of their income in state and local taxes than any other group.

The Prosperity Budget turns things right-side up again, starting with two new income tax brackets and rates on high income households. For married households, the Prosperity Budget applies a 9.5 percent tax to income above $200,000 and a 10.5 percent tax to income above $500,000. For single households, the 9.5 percent tax is applied to income above $100,000 and the 10.5 percent tax is applied to income above $250,000.

These changes at the higher end of our income tax are essential to ensuring the households that are benefiting most from our economy are contributing a proportionate share toward shared prosperity.

Turning Maine’s income tax right-side up again

Turning the income tax right-side up again also requires reforms to support low-wage households. The Prosperity Budget expands the state Earned Income Tax Credit, to provide an even bigger boost to the incomes of workers with low wages. The state and federal EITCs alleviate poverty and encourage work by providing a bigger tax refund to workers with low wages. These larger refunds help families cover basic expenses like groceries, child care, and heating oil.

The EITC is one of the most proven effective anti-poverty programs ever, but the state’s current credit is the smallest in New England, equal to just 5 percent of the federal EITC. This Prosperity Budget triples the EITC to equal 15 percent of the federal credit and expands eligibility to childless 18- to 24-year-olds, who are currently locked out of the EITC’s benefits.

To further improve progressivity in Maine’s income tax code, the Prosperity Budget increases the standard deduction by $500 for single filers and $1,000 for married filers. The standard deduction decreases how much filers owe in income tax by setting aside a portion of income, tax-free, to cover living expenses. Anyone can use the standard deduction, but Maine phases it out for higher-income households who don’t need help covering the cost of living. The Prosperity Budget lowers the threshold at which the standard deduction phases out entirely, down to $135,000 for single filers and $270,000 for married filers.

Some filers don’t claim the standard deduction, opting instead to add up, or “itemize” individual tax-deductible expenses and subtracting the total from their incomes. But recent changes to Maine’s income tax have significantly increased the standard deduction and limited the number of tax-deductible expenses Mainers can claim. Today, nearly all Mainers claim the standard deduction.

To recognize this reality and simplify Maine’s income tax code, the Prosperity Budget eliminates all non-medical itemized deductions, a move that will streamline state tax filings and simplify the overall structure of our tax code with minimal effect on most filers.

The net effect of these and other changes outlined in the Prosperity Budget can be seen in the chart below.

Revenue solutions to fund prosperity

The Prosperity Budget outlines the opportunity for policymakers to invest in good schools, good jobs, healthy families, and thriving communities. Those investments will put Maine on an upward trajectory toward shared prosperity for years to come. But to seize that opportunity, we must raise revenue. Getting rid of the LePage-era tax cuts for the wealthiest and fixing our up-side down income tax code is a critical part of the Prosperity Budget’s plan to invest in our future.