Governor Mills puts veto pen to good use on proposed income tax hike
On April 26, Gov. Janet Mills vetoed a Republican-sponsored bill that was originally intended to reduce income tax rates for everybody but was hijacked in committee to increase taxes on high earners. The bill was supported by legislative Democrats and even some Republicans.
The final form of LD 1231, “An Act to Bring Fairness in Income Taxes to Maine Families by Adjusting the Tax Brackets,” that reached the Governor’s desk received an ought-to-pass report with support from every Democrat member of the Taxation Committee. Furthermore, not a single Senate Democrat voted against the bill. Senate Republicans, however, opposed this legislation because, on the whole, it would raise Mainers’ income taxes and provide very little “fairness” in doing so. What’s more concerning is the small number of House Republicans who supported the bill simply because it included a small tax cut for certain lower-income earners.
LD 1231’s veto has significant implications. It will be sent back to the Legislature, and if voting lines remain the same, the bill’s supporters will not have the supermajority they need to override the veto. That would mean that Gov. Mills’ actions effectively stood up to an unwise and overexcited Legislature and left the bill with zero chance of becoming law.
Rep. Meldon Carmichael proposed LD 1231 in 2023 with Maine Policy Institute’s support, but it initially lowered income tax rates for all earners. However, the Taxation Committee felt that the state revenue lost from letting Mainers keep more of their money was too steep, and that the loss needed to be reduced or neutralized. Thus, when the bill left the Taxation Committee, it didn’t reduce tax rates. Instead, it shifted the starting point of each bracket upwards, only benefitting taxpayers whose earnings are on the borders of the lower brackets.
Additionally, the bill created multiple higher brackets to offset the revenue lost from this shift. The committee also established another bracket at an 8.45% marginal rate on top of our preexisting top rate of 7.15%, but there weren’t enough earners at that rate to make the bill revenue-neutral. Thus, another 7.55% bracket was sandwiched in the center of the 7.15% bracket, meaning that for some earners, their marginal rate went from 7.15% up to 7.55% and then back down again.
By the time this originally tax-reducing bill reached the Governor’s desk, it actually created multiple higher tax brackets and increased the maximum marginal tax rate by more than one percent. The final piece of evidence that this bill, in its final form, raised taxes rather than lowered them, is that the fiscal note from the Office of Fiscal and Program Review cited the bill as generating more revenue for the state than it lost. If a bill altering our tax code is revenue-positive, it is entirely inaccurate to call it a tax cut.
In her veto message, Gov. Mills cited some of these concerns. Because public hearings on the bill addressed either the original version or a completely blank concept draft, the public had practically no word on the final version of the heavily-amended bill. Additionally, while lawmakers claimed the bill targeted relief to low-income Mainers, only 6,735 tax returns from Mainers earning between $30,000 and $50,000 would have been affected, with an average savings of just $22 per year. For earners above $100,000, the savings would have been far more substantial, though those in the top one percent of earners would have seen a remarkable tax hike. Lastly, the governor noted Maine’s 7.15% top income tax rate is already very high, in the nation’s top ten highest state tax rates, and Gov. Mills acknowledged the potential harm the state and people could suffer from raising taxes further.
Gov. Mills made the right call on this issue and pushed back on a poorly thought out tax hike. If she had applied some of these same considerations to other proposals in the session, perhaps she would have never proposed a streaming service tax in her budget, or proposed tax cuts rather than simply opposing new tax increases. Regardless, it is still a good thing that she stood up to members of her party in the Legislature on this issue and saved Mainers from a potential tax increase.