In his 2015 State of the State Address, Gov. Paul LePage (R-Maine) called for an elimination of the state income tax “once and for all.” A significant potion of LePage’s speech was dedicated to a tax reform proposal that he announced last month. Here are some highlights:
“Maine is currently not competitive nationally or globally. Our tax system is antiquated. We must modernize it.
My fellow Mainers, you work hard for your paycheck. The government takes your earnings, and you have no control over how it is spent.
You earned it. You should keep it!
An income tax cut puts money back in your pocket. It is a pay raise for all working Mainers…
This plan is different from past plans. It is not a tax shift. It is a tax cut for all Mainers.
My vision is a Maine with no income tax. But I’m no magician. It takes time.
When I took office, Maine’s top income tax rate was 8.5 percent—one of the highest in the nation.
We reduced the rate to 7.95 percent—a baby step. This plan cuts it to 5.75 percent—a 40 percent decrease in the income tax since I took office. That’s one big step.
A young married couple, both teachers with one child, claiming a standard deduction, would get a $1,500 pay raise.
That’s a mortgage payment. That’s few tanks of heating oil. It’s several car payments or back-to-school clothes for the kids. It’s real money. It makes a real difference…
This plan reduces the tax burden on Maine families and small businesses by $300 million. That’s a real pay raise for the Maine people!..
There are 9 states with no income tax. 19 other states are working to reduce or eliminate the income tax. Maine is leading the nation with our bold plan. We’re the first out of the chute…
Maine’s corporate tax is a job killer. My plan cuts it. We also eliminate the Alternative Minimum Tax.”
Gov. LePage’s plan would reduce the top corporate tax rate from 8.93% to 6.75% and exempt the first $48,000 of income for a family of four from the state’s income tax. He also eliminates the death tax and the tax on pensions. While his plan eliminates a number of exemptions and adds the sales tax to a number of services, this $219 million revenue increase is more than offset by his other tax reductions. LePage’s plan reduces net taxes by $300 million annually when fully phased in.
This isn’t Gov. LePage’s first tax reform proposal. As he noted in his speech, in 2011, LePage successfully reduced the state income tax top rate from 8.5 percent to 7.95 percent. His most recent plan eliminates a range of credits and deductions and when fully phased in will result in $1.2 billion in income tax cuts over the 2018-2019 biennium.
Source: State of Maine Biennial Budget Briefing
LePage’s plan also reduces the number of corporate income tax brackets and reduces the top rate from 8.93 percent to 6.75 percent by 2020, resulting in a $50 million tax cut by 2019.
While the long list of tax cuts and changes to the tax code are an important step in simplifying Maine’s tax code to make it flatter, fairer, and lower, perhaps the most significant proposal came at the end of LePage’s State of the State Address:
“We must make sure the income tax keeps going down every year until it is gone.
I ask for a constitutional amendment that will direct all growth in revenue to go toward eliminating the income tax—once and for all.”
Americans for Tax Reform is a big proponent of revenue triggers, which pay for long term tax cuts through economic growth. Instead of immediate tax cuts that could require spending restraint or tax shifting, revenue triggers like the one Gov. LePage has called for set, as a matter of law, new revenue generated through economic growth aside for rate reductions. Instead of states squandering budget surpluses on long term spending programs, all new state revenue above an amount set by the state is calculated as a percentage of a tax cut (income in this case).
North Carolina established revenue triggers as a means for reducing the state’s corporate rate and Kansas enacted revenue triggers for the income, corporate, and banking tax. In Kansas, it will take the House, Senate, and Governor to reverse the long term goal of eliminating each of these taxes. For more information on revenue triggers, read our brief here.
We applaud Governor Paul LePage’s bold tax reform proposal and encourage the legislature to adopt both it and his plan to fully phase out the income tax.