Should Maine tax the rich more?

A new report from the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst, supports the concept of raising taxes on wealthy taxpayers in Maine to help the state’s budget woes.

The report looks at the potential negative consequences of such a move, but suggests the benefits would outweigh the negatives.

“There’s a lot of politicized rhetoric about what could happen if states moderately raise their tax rates for their wealthiest citizens,” said economist Jeffrey Thompson, the report author, in a Monday release. “But the reality, based on very clear data, is that the end result will be more revenue in the state coffers to pay for public services. None of the scare stories — people fleeing the state, people stopping work, or not starting new businesses — have been shown to happen in the past, or are likely to happen now. Wealthy households have reaped vast benefits from state and federal tax codes for decades now, and to look to them now for much-needed revenue is sound policy,”

The Maine Center for Economic Policy touted the study in Monday’s release. MECEP noted that the “Responsible Solution” proposed by the Engage Maine coalition in January would “restore tax fairness and raise needed revenue without negative effects upon the state’s economy.”

From the release:

Engage Maine, a coalition of more than 100 progressive Maine leaders, nonprofit organizations and allies, has called upon legislators to roll back recent tax cuts for households earning more than $200,000 and increase the effective tax rate on the top 1 percent of taxpayers to the average tax rate of all Maine households to recover more than $70 million in revenues lost under the state’s current tax policies.

“The Engage Maine ‘Responsible Solution’ restores fairness to Maine’s tax code while providing much needed revenue to meet the state’s budget challenges,” MECEP Executive Director Garrett Martin said in the release. “The 2011 state budget actually increased taxes on those who can least afford it and gave huge windfalls to those who need it least. This new PERI report verifies the case that MECEP and our Engage Maine partners have made to legislators and the people of Maine. It makes good economic sense to demand that Maine’s wealthiest pay their equitable share to fund health care, education, and other critical programs that lessen the damage caused by the worst recession since the Great Depression.”

From the report itself:

In Maine, the poorest twenty percent of households pay 17.06 percent of their income in state and local taxes, the middle twenty percent pay 11.68 percent and the richest one percent pays 9.99 percent – a pattern that is true in all states.

 In addition to significant federal tax breaks, wealthy taxpayers in Maine have enjoyed significant state tax breaks, which is in part why the state does not have the resources it needs to fund public services. Last year Maine passed a budget that lowered the top marginal rate from 8.5 percent to 7.95 percent. The budget also doubled Maine’s estate tax exemption from $1 million to $2 million for an individual. These changes were paid for in part by a 20 percent reduction in Maine’s property tax relief program. The income and estate tax provisions included in last year’s budget will reduce revenues by $393 million in the next biennium.