Other states are cutting income taxes while Maine does nothing


As many states across the nation take proactive steps to ease the tax burden on their residents, Maine seems to be falling behind in enacting significant income tax reforms. Two notable examples of states enacting tax relief are Connecticut and Hawaii, both of which are blue states like Maine and have recently introduced substantial changes aimed at benefiting taxpayers.

Connecticut’s Income Tax Reduction

At the start of 2024, Connecticut residents were expected to get three significant tax relief measures. Among them is the largest reduction in income tax rates in Connecticut’s history. Democratic Gov. Ned Lamont announced that these tax cuts are part of a broader effort to make Connecticut more affordable for its residents. 

The new income tax rate is designed to provide relief to middle-class families, low-income workers, and seniors. It will benefit more than one million tax filers in the state. It includes a drop in the 3% tax rate on the first $10,000 earned by single filers and the first $20,000 earned by joint filers to 2%. Additionally, there will be a drop in the 5% tax rate on the next $40,000 earned by single filers and the next $80,000 earned by joint filers to 4.5%. The reduction aims to improve the state’s economy by increasing disposable income. 

Hawaii’s Income Tax Reduction

Hawaii has also taken a significant step with Democratic Gov. Josh Green signing into law the largest income tax cut bill in the state’s history. This reform is targeted at working families and it intends to make living in Hawaii more affordable amidst the high cost of living. It will make Hawaii’s income taxes paid by working class families drop by 71% by 2031. Hawaii claims the changes help transition it to become among the fourth-lowest taxed states for working families. Additionally, the new legislation exempts certain medical services from the General Excise Tax (GET), further easing financial pressures on residents. 

Other States

Reducing income taxes in recent years is not limited to blue states like Connecticut and Hawaii. From 2021 to 2024, other states like Arkansas, Georgia, Indiana, Kentucky, Mississippi, Missouri, Montana, Nebraska, North Carolina, and South Carolina have done the same. All of these states have implemented significant tax cuts. For instance, Arkansas has reduced its highest income tax rate from 4.7% to 4.4%, while Georgia has introduced a flat tax rate that will gradually decrease to 4.99% by 2029. 

In Indiana, the state has expedited its scheduled rate cuts, planning to lower the individual income tax rate to 2.9% by 2027. Similarly, Kentucky, Mississippi, and Missouri have implemented notable reductions, each aiming to ease the tax burden on their residents and improve local economies.

These tax reforms are designed to boost the economy by increasing disposable income, which can, in turn, encourage consumer spending and investment. They are part of a larger strategy to make the states more attractive to both residents and businesses. 

Maine Remains Uncompetitive

In contrast, Maine has not introduced comparable reforms in recent years despite facing similar economic challenges as other states. Earlier this year, Gov. Janet Mills vetoed a bill (LD 1231) that aimed to create a higher tax bracket for high earners while marginally reducing income taxes for lower- and middle-income residents. Although the bill intended to expand the state’s lowest tax rate of 5.8% to more people, Mills rejected it, citing the lack of a transparent and deliberative process and concerns about making fundamental changes to the state’s income tax structure without proper public input. She further cited that the bill does not deliver meaningful tax relief, as low-income Mainers would receive very little to no relief from it. The reduction was estimated to be only $22 per year.

The absence of significant tax policy changes leaves Maine residents without the same level of financial relief seen in Connecticut, Hawaii and other states. This inaction places Maine at a disadvantage as neighboring states and others across the country adopt measures to enhance affordability and encourage economic growth.

Implications for the State

Maine’s reluctance to implement income tax reforms have several implications.

First, it places the state at a competitive disadvantage. When other states reduce their income tax rates they become more attractive to both skilled professionals and businesses. Lower tax rates can convince high earners to relocate as they aim to maximize their disposable income. Similarly, businesses prefer states with more favorable tax conditions to reduce their operational costs. This relocation of residents and businesses can lead to a shrinking tax base, further increasing the state’s financial challenges and limiting its ability to invest in essential services and infrastructure.

In addition, without meaningful tax relief, Maine’s middle-class families continue to bear a significant financial burden. The rising cost of living, which is driven by factors such as housing, healthcare and inflation, puts substantial pressure on household budgets. When states provide tax cuts, it increases the disposable income of their residents and allows them to better manage these expenses. In contrast, Maine’s middle-class families may struggle to keep up, potentially leading to a lower quality of life, increased debt and reduced savings for future needs like retirement.

Moreover, a lack of proactive tax policy can slow Maine’s economic growth and development. Increased disposable income is essential for economic activity, as it encourages consumer spending, which in turn promotes business growth and job creation. When residents have more money to spend, local businesses benefit, leading to a more vibrant and robust economy. 

Maine’s reluctance to implement tax reforms means it may miss out on these opportunities, resulting in slower economic growth compared to states that actively pursue tax relief measures.

Going Forward

For Maine to be competitive and support its residents, it must consider following the example set by other states around the country that are simplifying their tax codes. By reassessing its tax policies and exploring opportunities for reform, Maine could provide much-needed relief to taxpayers, encourage economic growth and enhance the overall quality of life. As other states continue to evolve their tax strategies, Maine lawmakers have an opportunity to reflect on these developments and make informed decisions that will benefit the state and its people well into the future.

Afua Kwarteng is a graduate student at the University of Maine pursuing a dual MBA and Global Policy degree. She graduated from the University of Ghana with a BA in Political Science and Swahili. She is passionate about state and international policy and is serving as Maine Policy Institute’s 2024 communications intern.