Maine should use its revenue surplus to lower taxes

By Matthew Gagnon

Maine received word of an early Christmas present last week, when state revenue forecasters announced that updated projections showed that Maine will have an additional $822 million in revenue to play with during the current biennium. This massive surplus will immediately become a political football in an already contentious election season, as Gov. Janet Mills submits her budget wishlist to the Legislature for its consideration in the upcoming session. 

Given the makeup of the Legislature, it is likely that whatever Mills proposes will be passed with little pushback or change. After all, throughout the entirety of the pandemic, legislative leaders have — to be kind — taken a back seat in government, more or less rubber-stamping (and failing to challenge) the governor. 

Mills, for her part, is saying that she is interested in examining “ways we can use this additional revenue to provide direct financial relief to folks hard hit by these increases [in the cost of living]  to help them through these difficult times.”

What that “direct relief” will look like is anyone’s guess, but given the way she has governed to date, I would expect that it involves a lot of government programs, subsidies and marginal (borderline meaningless) one-time direct payments. 

The governor correctly points out that “the increased costs of electricity, home heating fuels, gas at the pump, and other necessities are putting a real strain on the budgets of Maine people,” but don’t expect any of the proposals from her office to fundamentally change any of these realities in Maine. At best, they might provide some short-term relief to some Mainers, which could very well be wiped out by continued inflation.

Having this level of surplus — which, let’s be honest, is not the result of prudent fiscal management by Mills, but rather is due largely to the effect of titanic amounts of federal cash on the revenue picture in Maine — presents the state with a once-in-a-generation opportunity to reposition itself, and make systematic, permanent, long-term changes that would leave it more economically competitive than it has ever been.

If the additional revenue was used to reform Maine’s tax code, we would have an opportunity to completely eliminate tax liabilities for all income up to $50,000, and still have room left over to lower taxes on the remaining upper-income tax brackets. 

This would be an immediate benefit of hundreds if not thousands of dollars for everyday middle-class Mainers, and it would be permanent, allowing them to have additional money in their pockets every year going forward. 

More importantly, it would achieve a longstanding goal of many in Maine, by making us more competitive economically. Our tax rates — currently at 7.15 percent for the highest bracket — have long been a disadvantage, particularly when compared with neighbors like New Hampshire, which has no income tax, and even “Taxachusetts,” which now has a flat 5 percent income tax across the board. 

Other states have been taking advantage of their positions to do exactly what I propose. New Hampshire eliminated its interest and dividends tax, lowered its business tax rates, and cut the statewide property tax, all while increasing aid to municipalities. 

In North Carolina, lawmakers, in a deal that was negotiated in consultation with the state’s Democratic Gov. Roy Cooper, are aiming to lower the state’s personal income tax rate from 5.25 percent to 3.99 percent, eliminate taxes on military pension income and phase out the state’s corporate income tax. 

These changes are being made with an eye toward creating a competitive, growing economy that attracts wealth, attracts investment and helps facilitate prosperity. The tax changes not only help create a better environment in the states for entrepreneurs and workers, but also provide direct, lasting relief to people who need help right now. 

In other words, real, permanent and lasting tax reform checks a lot of boxes that need to be checked, and there will never be a better opportunity to make this kind of change. If Mills truly wants to provide relief to families, and set this state up for growth and prosperity, she will ignore calls to create gimmicky payment and subsidy schemes, and create a larger, permanently expensive government bureaucracy, and she will instead choose to make a lasting change that will leave her with a positive legacy and will leave Mainers better off for years to come.

Gagnon of Yarmouth is the chief executive officer of the Maine Policy Institute, a free market policy think tank based in Portland. A Hampden native, he previously served as a senior strategist for the Republican Governors Association in Washington, D.C.