Maine – Aiming the State toward a Competitive Tax Plan

With only a few notable exceptions, most state legislatures today are working hard to construct a plan to rewrite their often-oppressive tax codes. They have witnessed the positive economic growth of states having favorable tax environments, and see themselves on the losing end of a trend. Their collective goal is twofold. First, they want to keep their residents from leaving for lower tax states. Second, they aim to become more competitive in attracting a greater share of migrating Americans’ working wealth. Maine is now working toward becoming another entry on that list of forward-thinking states.

With only 1.4 million residents, the Maine has the distinction of being the least-populated state east of the Mississippi River. As its “Pine Tree State” moniker implies, 90 percent of its land is still forested. Jagged rocks and cliffs line its pristine shores, and it marks the starting point of the Appalachian Trail, which runs from Maine to Georgia. Maine is famous for its lobsters and is a paradise for tourists, particularly hunters, campers, and hikers. It is estimated that over 5 million tourists visit Maine each year.

Just last week, a new tax code overhaul plan was proposed by a bipartisan group of 11 lawmakers. The plan is intended to lower individual and corporate tax rates, totally eliminate the estate tax, and raise the Homestead Exemption from its current first ten thousand dollars of assessed property value, to fifty thousand dollars. The challenge, as always, is to implement such a bold plan while remaining at least revenue-neutral. Shifting some of the tax burden to those 5 million out-of-state tourists, through a 3 percent increase in lodging taxes, is one of several ideas to help offset the projected revenue loss of implementation.

Maine’s highest personal income tax bracket stands today at 8.5 percent. The new plan would reduce this to a flat 4 percent while eliminating most of the former tax deductions. The corporate income tax rate would be reduced from 8.93 percent to 7.5 percent. The current 5 percent sales or consumption tax would then be increased to 6 percent. At its current 5 percent rate, 41 other states rank higher. According to Tax Foundation.org, even at 6 percent, Maine would still be 37th on the list from having the highest sales tax rate. This sales tax reduction would not only eliminate 87 sales tax exemptions, but it would also increase the list of taxable items significantly. For example, you would not want to be a smoker in Maine. The tax on your cigarettes would increase from $2 to $3.50 per pack. New taxes would be imposed on meals, groceries, heating oil, beer, and auto rentals.

Opponents feel that moving to a flat tax system and removing exemptions shifts the tax burden from the rich to the poor. Those less fortunate would be most affected by taxes and the least able to pay them. In response, the legislature is also working on several different types of sales tax rebate programs.

Those who oppose and those who promote the plan all agree that it is not perfect. Most can find a negative consequence in virtually every component. But I believe that this proposal will at least set the ball in motion towards passage of new tax policy. Plus, it is good to see a policy that is good for Maine’s taxpayers and for the state itself on the national stage.