Lobsters, Pine trees, Blueberries, and  . . . Unconstitutional Taxes?  Welcome to Maine!

Lobsters, Pine trees, Blueberries, and . . . Unconstitutional Taxes? Welcome to Maine!

September 17, 2009 Posted by J. Scott Moody - No Comments

Posted by Arnie Clark, Director of the Center for Constitutional Law

There has been a lot of discussion lately over the relative merits and drawbacks of the recent blast of changes to the tax laws here in Maine.  Most of that discussion has been from a policy perspective–about whether the changes are good policy or bad policy.  One consideration that has been getting overlooked in all this is whether the new law is even constitutional to begin with.  

Take, for example, the newly created “household credit.”  Under the old law, taxpayers could use deductions (standard or itemized) and personal exemptions to reduce their taxable income.  Under the new law, taxpayers can no longer use deductions and exemptions.  Instead, they use the household credit to reduce their tax liability.  (As a shining example of tax code simplification, the household credit replaces the deductions and exemptions, but the taxpayer’s household credit is calculated based on what the taxpayer’s deductions and exemptions would have been.) The big difference, though, is that the household credit is only available to established residents.  Suppose you are a new resident moving to the state, or a Maine native coming back to raise your family here.  You will be greeted with a big tax bill your first year back.  Meanwhile, all your neighbors with the same household income that were here before the new law took effect will pay a much lower tax.  Welcome Back!  Or, suppose you work here in Maine, but you commute from out of state to do so.  You will be greeted with a big tax bill every year.  Welcome Back!  So, what about this “household credit” and the “Welcome Back Tax” it creates?  Are they constitutional?

After a bit of looking, it appears this new law runs afoul of no less than three provisions of the United States Constitution.  This paper (pdf) summarizes how the new income tax scheme collides with the Commerce Clause, the Privileges and Immunities Clause, and the Equal Protection Clause.

The amount of the tax isn’t the same for everyone.  For a family of four with an average household income, the Welcome Back Tax can amount to $2,200, and the more kids you have the higher the tax can go.  I doubt I’ll hear someone explain how the Welcome Back Tax encourages businesses to move here, or encourages our young people to come back home.  I’d be even more surprised to hear someone explain how the Welcome Back Tax is constitutional.