Maine Legislature Scrambles to Break Tax-Surcharge Deadlock

Published June 12, 2017

Despite meeting in May to break a stalemate over the state’s 3 percent tax surcharge, members of Maine’s Joint Standing Appropriations and Financial Affairs Committee were unable to break a deadlock that could lead to a lapse in state government operations.

Gov. Paul LePage (R) says he won’t agree to sign any budget sent to him that does not contain a repeal of the surcharge, forcing lawmakers to decide between removing the surcharge and having to try to override a veto.

Top lawmakers from the majority Democratic Party met with Republicans to resolve the fate of Maine’s “millionaire tax,” a 3 percent surcharge added in 2016 to the tax burdens of individuals with more than $200,000 in taxable annual income, but remained unable to agree on how to proceed, Portland Press-Herald staff writer Kevin Miller reported on June 2.

The state’s fiscal year ends on June 30, after which point state agencies’ funding will lapse until the legislature passes a budget bill and LePage signs it into law.

National Groups Intervened

Liam Sigaud, a policy analyst with the Maine Heritage Policy Center, says the tax surcharge, approved by voters in November 2016, was driven by out-of-state organizations with deep pockets.

“Two groups primarily drove this initiative: the Maine People’s Alliance, a progressive advocacy group with deep ties to labor unions, and the Maine Education Association, which represents public school teachers in Maine,” Sigaud said. “The effort was exceptionally well-financed, [with] the majority of the funding coming from outside of Maine. A total of $4.7 million was spent in favor of the ballot initiative, of which $2.4 million came from the National Education Association, compared to just $500,000 opposed.”

Taxes Raised, Revenue Fell

The projected additional revenue predicted by these groups to convince residents to vote “yes” on the ballot question has not materialized, Sigaud says.

“Fiscal analysts in the legislature estimated that the surtax would raise about $157 million annually, which would theoretically be sufficient to accomplish the supporters’ goal, which is to increase the state’s share of education funding to 55 percent,” Sigaud said. “However, preliminary revenue projections suggest that the surtax has accelerated out-migration and led to more tax avoidance. It’s still unclear what the surtax’s long-term budgetary impact will be, but it seems certain that the initial revenue estimates will have to be revised downward.”

State Sen. Joel Stetkis (R-Canaan) says increasing taxes on wealthy Maine residents has not delivered the results the special-interest groups promised.

“Certain people that support tax increases think they are going to bring in more revenue,” Stetkis said. “Our first-quarter numbers came out a few weeks ago. The first quarter this was implemented, we brought in less tax revenue than the same quarter [in 2016].”

Alienating Professionals

The tax surcharge is already chasing away high-income individuals with talents needed by Maine residents, Stetkis says.

“In rural Maine, which is actually three-quarters of the state, for years we have had a very difficult time attracting the kind of people that actually earn $200,000 a year: medical professionals, specialists, dentists, those types of people,” Stetkis said. “So, we have a massive shortage of professionals as it is in rural Maine, but they have a shortage in urban areas as well. We’re already seeing some of these physicians and specialists, especially those near retirement age, closing their practices and escaping.”