A recently imposed tax surcharge on high-income households could cripple Maine’s ability to attract companies and professionals and drive some businesses out, according to a coalition formed to repeal the new law.
More than 50 business owners and representatives gathered Thursday in Portland to launch a new lobbying group, Keep Maine Competitive.
The group called on legislators “to repeal, through the state budget process,” a 3 percent tax surcharge on annual household income over $200,000 passed in a citizen referendum in November. Revenue from the tax will go directly to fund K-12 education. The coalition includes 21 state professional and business associations, the Maine State Chamber of Commerce and five of the state’s largest regional chambers of commerce.
“This tax sends the message, very strongly, that the successes of innovation and entrepreneurship are punished,” said Giovani Twigge, corporate vice president at Idexx Laboratories. Adding to the state’s already-high income tax will make it even more difficult to recruit professionals to the company’s Westbrook headquarters, Twigge said.
The tax referendum passed by a slim margin in November, 50.4 percent to 49.6 percent. Referendum supporters believe the law is a mandate from voters and intend to fight its repeal in the State House, said John Kosinski, an organizer with Stand up for Students, that campaigned to pass the referendum.
“I’m disappointed the business interests in the state aren’t more interested in investing in our schools,” Kosinski said. “This is sour grapes. They made their case to the voters and the voters saw it differently.”
Wealthy Mainers have received tax breaks from the state while the poor and middle class have seen rising property taxes, mostly to fund local public schools, he said.
“Voters are tired of tax breaks at the top,” he said. “Over the past six years, there have been two huge tax cuts to help the wealthiest Mainers while we still underfund our schools.”
TAX TROUBLES
Under the new law, Maine’s top marginal income tax rate is 10.15 percent, the second-highest in the nation behind California. Even before the tax surcharge was passed, companies looking to relocate in northern New England chose New Hampshire over Maine because it doesn’t have an income tax, said Greg Boulos, partner at real estate firm CBRE|The Boulos Co. Individuals have established residency in Florida to escape Maine’s high taxes and if more high-income households leave the state, it could put charitable giving and support for the arts in Maine at risk, he added.
“The state can’t tax itself into prosperity,” Boulos said. “Quite the opposite, high taxes create a disincentive for businesses to come here and individuals to stay.”
There is also concern that the surcharge will discourage small business owners from opening or expanding operations in Maine. Many small business owners report income from their businesses as personal, not corporate, income and would be subject to the surcharge.
“There are a lot of family-owned businesses that are affected by this, and they need dollars to reinvest and they are going to be paying it in the form of taxes,” said Dana Connors, Maine State Chamber of Commerce president.
Both sides intend to make their case before the Legislature’s Appropriations Committee during a public hearing on the 2018-2019 budget at the State House in Augusta on Friday.
According to state data, households earning more than $200,000 per year were paying more than a third of the state’s tax liability before the surcharge was passed. An analysis by the state’s Office of Tax Policy showed that 1 percent of Maine households earn above $383,000 per year and would pay about 87 percent of the expected $123.8 million in new tax money generated by the surcharge in 2017.
Will Ikard, from the Maine Small Business Coalition, said 96 percent of small businesses will not be affected by the new tax, but have been harmed by steadily increasing local school taxes.
“The mom-and-pop shops that make up the core of Maine’s economy and Maine’s jobs just aren’t going to be affected by this, but they are currently paying (for education) through their taxes or their rent,” Ikard said. “Having the wealthiest fraction of Mainers pay their fair share is in everyone’s best interest.”
Advocates of Question 2 argued that having the state’s wealthiest residents pay more to improve K-12 education was an equitable way to address the state’s chronic underfunding of public education.
More than a decade ago, voters decided the state should pay 55 percent of the cost of K-12 education – a goal that has never been reached. The revenue raised by the surcharge is supposed to go into a specific fund that would be used to reach the 55 percent mandate if the General Fund appropriation falls short. Any money from the fund must be used for so-called “direct support,” such as instructor salaries, and may not be used for administrative purposes.
The coalition supports adequate funding for schools, but wants the Legislature to find the money somewhere else, Connors said. Revenue from recreational marijuana could be used instead of income tax, but the decision would ultimately be left up to lawmakers and their discretionary use of general funds, he said.
This story was updated at 1:30 p.m. Feb. 9 to correct the percentage of Mainers whose household incomes exceed $383,000.
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