If we are to believe that raising “sin” taxes will discourage unwanted behavior, such as smoking, why should we conclude that increasing income taxes will encourage desirable behavior, such as investing in Maine? Supporters of Maine’s new surcharge, which amounts to a 42 percent tax increase, seem to believe that raising taxes on small-business owners and job creators provides an incentive for those individuals to stay in Maine. The evidence says otherwise.
The new surcharge is the result of the passage of Question 2 on last November’s ballot, which passed by the slimmest of margins. In order to provide additional funding for Maine’s public schools, it calls for a new, 3 percent tax on households earning over $200,000 in taxable income annually. This creates a new, highest-in-the-nation tax bracket here in Maine.
It is clear that Maine voters want the state to spend more resources on education, but I refuse to believe that in doing so they wanted to punish Maine’s small businesses and discourage investment in our state.
But that is precisely what’s happening. Recently, dozens of people came to testify before the Legislature’s Taxation Committee about the impact the new tax is having on them and their businesses.
Among them was John McGoldrick. He and his wife are moving to New Hampshire because this new tax, in his words, is the last straw for them. “For what we are paying to the state of Maine income tax each year, we were able to get a mortgage on a very nice house in New Hampshire,” he said.
Robert Sansone of Tyler Technologies in Yarmouth, a software company, testified that his company recently began construction on a 94,600-square-foot expansion, but had they known about the new tax beforehand, it would have affected their decision on whether to build in Maine or at one of their other locations.
Others, representing the medical industry, testified about the difficulty they already have recruiting doctors – particularly those who are paying off hefty student loans – and how the new tax will make that process even more difficult, particularly in rural Maine. Executives from Maine companies like Idexx and Wex also talked about the disincentive that the 3 percent surcharge presents to skilled employers coming to our state.
A Portland man who identified himself as a small-business owner and lifelong Democrat who comes from a family of public school teachers said, “The folks who wrote this bill did not do their homework. They clearly did not understand the already unfair tax burden small businesses face compared to multinational corporations.”
Maine should heed the words of Democratic Connecticut Gov. Dannel Malloy, who recently acknowledged that a series of tax hikes against “the rich” is driving businesses and high-income earners from his state, resulting in a significant budget deficit. Connecticut is the “canary in the coal mine” for Maine lawmakers, and we are already seeing the negative impact of the new tax increase in our state. On May 1, the Revenue Forecasting Committee reported that the first estimated payment for tax year 2017 was $9.3 million under budget – flat compared with a year ago. The committee had expected an increase of more than 20 percent.
Some have suggested that the people have spoken, and we must implement Question 2 as it appeared on the ballot.
But history suggests that approved ballot measures rarely become law without being amended by the Legislature, and often for good reason. A case in point is the marijuana law that was approved by voters.
Left unchanged, it would have allowed minors to use and possess the drug and for adults to drive while using it. So last January the Legislature amended the law to address these problems.
Over the past few decades, there have been 72 citizen initiatives. Of the 28 that passed, nearly 70 percent were amended by the Legislature. So there is nothing new or unprecedented when it comes to the Maine Legislature making needed changes to ballot initiatives.
The effect that Question 2 will have on Maine’s economy is dire and must be addressed.
We cannot simply stand by and watch people and businesses flee the state of Maine, leaving us to suffer the economic consequences. The Legislature can honor the spirit of what the voters intended by finding additional resources for public education without harming the state, but it will require lawmakers to put partisanship aside and work together.
Maine needs a budget that won’t bankrupt our economy, and will encourage economic growth and investment.
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