AUGUSTA — Maine’s tax code has been upside-down for decades. But not anymore.
Our state has reached a new milestone on the road to tax fairness: Starting in 2020, and for the first time in decades, the poorest Maine households will no longer pay a larger share of their income in state and local taxes than the wealthiest do.
Those who benefit the most from our economy should contribute proportionately toward the investments that ensure future generations will have the same or even greater opportunities for success.
For years, though, Maine’s tax system has turned this basic element of fair taxes on its head.
Going back at least as far as 1996, the bottom 40 percent of households have paid more of every dollar they earned to state and local taxes than the top 1 percent pay. By this measure, known as the “average effective state and local tax rate,” the wealthiest people in our state contributed less toward our collective future than those who earned the least.
Last week, the Maine Center for Economic Policy published a new policy brief showing that next year the bottom 40 percent of households by income – those who earn less than $35,800 per year – will no longer pay more than the top 1 percent.
This victory is the result of decisions made by the Legislature to expand three common-sense, proven programs that boost working families:
• The Earned Income Tax Credit, which encourages and rewards work for low- to moderate-income Mainers.
• The Property Tax Fairness Credit, which addresses the disproportionately high property tax rate for low-income renters and homeowners.
• The Homestead Exemption, which helps mitigate the tax shift that has caused skyrocketing property taxes to fill the gap left by income tax cuts that primarily benefit the wealthy.
Together, these policy changes have pushed down the average effective state and local tax rates for the poorest 40 percent of Maine households such that they will no longer pay more of their income in taxes than the top 1 percent pay.
While that fact alone is worth celebrating, it doesn’t fully capture all the reasons Mainers should celebrate this milestone. These policies don’t just make our tax code fairer. They will meaningfully improve economic opportunities for low- and moderate-income families.
For many Mainers with low incomes, it’s a constant challenge to keep up with expenses and provide for their families’ basic needs. The cost of necessities is rising faster than paychecks can keep up. Meanwhile, ballooning wealth inequality means it’s getting harder to cover the distance between barely scraping by and prospering.
The tax policies enacted this year will meaningfully improve the economic situation for hundreds of thousands of Mainers. Expansions of the Earned Income Tax Credit and Property Tax Fairness Credit will do the most for those families. Because these credits are refundable, they lead to larger tax refunds.
For some Maine families, these policy decisions will mean $500 or more in additional income annually. That’s money to cover the rising cost of child care, or to pay for the types of large purchases that make it easier to keep working, like a car repair.
Research shows that the benefits from refundable tax credits like these are especially powerful for children: The increased income from refundable tax credits decreases the likelihood of problems that stem from poverty. That means better health and education outcomes down the line.
This year’s tax policy changes represent an inflection point. But there’s still more policymakers can do to ensure a fair and adequate tax code for Maine.
Next year, Maine’s middle class will continue to pay more of every dollar they earn to state and local taxes than those at the top pay. And while the shape of our tax code is improving, decades of income tax cuts that primarily benefited the wealthy mean Maine will continue to lack the revenue we need to pay for core investments in communities and our economy. Despite improvements over recent biennial budgets, Maine’s public schools are still $98 million short of being fully funded, while local services such as road maintenance, public safety and water treatment are underfunded by $68 million.
In the next legislative session and beyond, Maine will need to raise additional revenue to meet the state’s short- and long-term needs without undermining its victories in tax fairness.
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