Maine income tax lowered for all taxpayers

Tax reform in Maine

By Ramona du Houx

July 3rd, 2009

Gov. Baldacci signs the historic tax reduction and reform bill into law. Maine is the only state to cut taxes this year.
Gov. Baldacci signs the historic tax reduction and reform bill into law. Maine is the only state to cut taxes this year.
The state of Maine took a big step forward to stabilize its tax code, when An Act to Implement Tax Relief and Tax Reform became a reality. At a time where many states have raised taxes, Maine’s new law reduces the tax burden on residents by almost $55 million.

Maine income tax was lowered for all taxpayers.

“The new code is more stable and progressive. It will help grow the economy. By making the earned income tax credit partially refundable, lower- and middle-income families will see an increase in their disposable income, so they can pay for essentials,” said Governor John Baldacci during the signing ceremony in his packed Statehouse office. “Maine is one of only three states that has this established, which makes our code more progressive.”

The plan was designed to be revenue neutral, asking visitors who enjoy the state’s amenities to pay a little more in certain areas, and increasing some sales taxes. Maine residents, 98 percent of them, will see an income tax deduction that will far outweigh any increases in what they pay towards sales taxes.

Maine’s income tax rate will be reduced from 8.5 percent to 6.5 percent for people earning up to $250,000. Incomes over $250,000, which is only 2 percent of filers in Maine, will be taxed at 6.85 percent.

According to a Wall Street Journal editorial, Maine’s tax rate will fall to 20th from seventh highest among the states. This will draw business and people to the state.

The governor applauded the work of the Democratic legislative leadership and chairs and members of the Joint Standing Committee on Taxation for working with his administration on the bill.

Sen. Joe Perry is being congratulated by Gov. Baldacci for his work on the law.
Sen. Joe Perry is being congratulated by Gov. Baldacci for his work on the law.

“Many other states are raising income taxes and making it more difficult for working men, women, families, and small businesses to be able to keep more of their hard-earned tax dollars,” said Baldacci. “We are rewarding work. This has been an enormous undertaking and one which required many people to work very hard over a long period of time. It is a testament to the people who are here and the citizens they represent. Not only is Maine open for business, it supports families and communities and is providing them with real tax relief.”

Seven years ago Martha Freeman of the State Planning Office started working on tax reform and reduction.

“This bill will move us into a 21-century tax structure. We were able to cut income taxes, which will help us attract skilled workers, retirees, and businesses to the state,” said Freeman. “Maine, with the governor’s leadership, is fiscally prudent. We built up a rainy-day fund, which helped cut $500 million out of the state government budget. So, as it often happens in the legislative process, two pieces work together. Both will move Maine forward into a 21st-century economy.”

Martha Freeman and Deputy Chief of Staff David Farmer discuss the tax relief and reform legislation with Gov. Baldacci. The new tax code lowers income taxes, while providing a more stable state revenue tax code.
Martha Freeman and Deputy Chief of Staff David Farmer discuss the tax relief and reform legislation with Gov. Baldacci. The new tax code lowers income taxes, while providing a more stable state revenue tax code.

Rep. John Piotti led the tax reform effort from the House. “It really was a team effort,” said Piotti. It is a code which will spur economic development, as well as being a code that will provide more stable state revenues. That is so critical.”

“We’re making the state more attractive,” said Sen. Joe Perry, who spearheaded the initiative from the Senate. “States all around us are balancing their budgets by increasing taxes. We balanced our budget with significant cuts, and on top of that we are now lowering our income tax rates. We are going to be strong coming out of this recession.”

The law also increases funding for tourism marketing. Tourism generates approximately $10 billion for the state each year. According to the Brookings Report, Maine has the potential to do more with branding and marketing. The same report on Maine outlines where the state needs to invest and where it needs to streamline services and reduce the tax burden, so the state will be in good standing for the 21st-Century global economy.

“This tax relief and reform gives Maine a tax structure for the 21st Century,” said the governor. “Working off the research that has been done, like the Brookings Report, we’ve been able to combine economic development while rewarding work.”

The measure is considered to be the most sweeping change in Maine’s tax code since income tax was adopted 40 years ago.

The law’s tax code alterations:

• Lowers the top income tax rate from 8.5 percent to 6.5 percent for income up to $250,000,
• Lowers the top income tax rate for incomes above $250,000 from 8.5 percent to 6.85 percent,
• Broadens the sales tax,
• Makes a portion of the earned income tax credit refundable for lower and middle income families
• Increases funding for tourism marketing.