Janet Mills right to veto income tax increase

By Matthew Gagnon

Very rarely do I get to compliment Gov. Janet Mills, so when the opportunity presents itself, I try to take it.

Last Friday, Mills made public her veto of LD 1231, a bill that (according to its ridiculous title) would “bring fairness in income taxes to Maine families by adjusting the tax brackets.”

The proposal would have created three new income tax brackets in Maine, in one of the more convoluted schemes I have seen in a long time. Maine’s current top rate, 7.15 percent, would have temporarily risen, via a new bracket, to 7.55 percent, then drop back down again to 7.15, then rise again to 8.45 percent. This would’ve put Maine’s top income tax bracket a full 1.3 percentage points higher than it is today.

The justification for the odd design seems to have been an attempt to “cancel out” tax benefits for Mainers who make more than $144,500 a year, which is a random and arbitrary line to choose. But it is the massive increase in rates for those who are supposedly “super rich” that was so jarring.

By going down this path, Maine would have made itself even less competitive on taxes than it already is, as it ranked as the state with the fourth highest tax burden overall, as well as highest property tax burden, according to the annual analysis conducted by WalletHub. All the more damning when neighboring New England states, including those like Connecticut run by progressive Democrats, have recently been cutting their taxes to try to make themselves more competitive. 

Ironically, this bill was sponsored by a Republican, Rep. Micky Carmichael, not a Democrat, though ultimately it was only supported by eight House Republicans in the initial vote on the bill. 

This was enough for media outlets to call it a “Republican proposal,” even though the main thrust of the push for this bill came from the Democrats. The bill received an ought-to-pass report with the support of every Democratic member of the Taxation Committee while there was not a single Senate Democratic vote opposed, or single Senate Republican vote in favor of the bill.

The argument for the bill, convoluted as it was, circulated around the question of tax burden. Proponents claim that the proposal would lower the burden on middle-class Mainers and shift some of that burden to the wealthy. Furthermore, they claimed that the bill was essentially revenue neutral, so even though they were jacking up the top rate, it didn’t really count as a tax hike. 

Mills, to her credit, saw through the hollowness of that argument. “While well-intentioned, the income tax shift in LD 1231 does not deliver meaningful tax relief,” she wrote in her veto message. “Low-income taxpayers would receive very little or no actual benefit from the proposal due to the state’s many available dedications and exemptions as well as the size of the existing 5.8 percent tax bracket.” 

Mills went on to note that Maine’s current top tax rate of 7.15 percent “is the 10th highest state income tax rate in the country, and there are concerns that increasing that top rate even further would create challenges for state budgeting, because it would increase the state’s reliance on a small number of taxpayers (less than 1 percent) whose income is disproportionately composed of highly volatile sources such as capital gains and business income.”

Quite right, on her part. And, of course, there is the psychology of tax rates on wealth flight. Talk to any financial adviser in the state, and they will tell you that many of their high net-worth clients are considering leaving the state, or have already left the state, due to their resentment over the continued attempts to soak their assets. Wealth doesn’t have to be here, and when you intentionally chase it away, you can’t be surprised later when your budgets suffer. 

All of that said, Mills sharpest — and best, in my estimation — criticisms of the proposal were over process. She was clearly annoyed that the bill began as a so-called concept draft, and that the real language of the bill was not available during its public hearing. Mills accused the Legislature of moving the bill through the process “in a manner that deprived the public of a meaningful opportunity to be heard.” 

She is right about that, though I would be remiss if I didn’t point out that this is the manner in which far too many bills passed through the sausage-making process in Augusta this year. 

Still, it is a welcome message, and her veto is the right decision.

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.