MHPC Releases Question 2 Report

October 13, 2016 Posted by Krysta West - No Comments

AUGUSTA- This week, The Maine Heritage Policy Center (MHPC) released a new report, The Wrong Choice for ME: How Question 2 would exacerbate inequality in K-12 education and cost thousands of jobs at a press conference in Augusta.

Question 2 on this November’s ballot proposes a 42 percent tax hike for Maine’s top marginal tax rate from 7.15 percent to 10.15 percent. As a result, Maine would have the second-highest marginal income tax rate in the country (behind only California) and the highest income tax rate in Maine history. Maine would introduce the highest tax rate in the country at the $200,000 income level, impacting 16,840 tax filers.

This tax hike would disproportionately impact small businesses that generate the majority of Maine’s private-sector jobs because the majority of Maine’s businesses are not subject to the corporate income tax, but rather profits flow through the owners and are taxed as ordinary income under the individual income tax. These pass-through entities in Maine accounted for nearly 61.7 percent of private-sector jobs in 2012 and would be subjected to the higher rate of 10.15 percent if Question 2 were to pass.

By using the ME-STAMP model, MHPC determined within the report that the passage of Question 2 would decrease private sector jobs by 3,970 in the first year, rising to 4,050 in 2021. Further, the tax increase would greatly reduce the amount of other tax revenue streams collected.

In addition to costing Maine thousands of jobs, Question 2 would deter high-income professionals such as physicians, surgeons and primary care providers from relocating to Maine. Considering that physician shortages are commonplace in Maine, this referendum would threaten Maine’s ability to provide services to its aging population, especially in rural areas that already have only half of the national average when it comes to primary care physicians.

In addition to costing thousands of jobs and encouraging the flight of wealth from Maine, there is no way to prevent future legislators from redirecting the funds to other programs. In the past, we have seen earmarked funds repeatedly be transferred back to the general fund to close budget gaps and support other programs.

Although Question 2’s supporters assert that the initiative would benefit schools “across the state” and promote “education equality in every zip code,” the funds would heavily favor wealthy school districts. By simply throwing additional funds into the state’s complicated formula, dozens of struggling communities in need of property tax relief, such as Upton and Acton, would receive no additional state funding under Question 2 while wealthy communities like Cumberland and Yarmouth would receive millions.

Instead of endangering Maine’s economic prosperity with large tax hikes on small business owners, advocates for a strong educational system should focus on expanding charter schools, creating educational savings accounts and empowering school choice so that Maine children, no matter where they live or the income of their parents, have access to high quality education.