Income tax relief has been enacted in most states in the past several years, with 2023 marking the third straight year that the number of states where income tax relief was enacted hit double digits. Tax burdens aren’t falling everywhere; however, last month, for example, Maine Governor Janet Mills (D) signed a new state budget that includes paid family and medical leave. In doing so, Maine becomes the 13th State to enact this new entitlement and fund it with a payroll tax increase.
Governor Mills has opposed to tax hikes proposed by legislative Democrats for years, but she finally gave in with this payroll tax hike. The new paid leave entitlement will be funded with a one percentage point increase in the payroll tax. It is projected this new tax increase will cost Maine taxpayers more than $360 million per year. The Maine Policy Institute (MPI), a free market think tank, criticized the tax hike, tweeting that it does not deliver on Mills’ “promise not to raise taxes.”
“Maine, which is already home to the third highest tax burden in the country, adds a greater financial burden to its comparatively poor population under this new budget,” MPI noted. “These new mandates and taxes on individuals and businesses only serve to make our state less competitive, both regionally and with the rest of the country.”
While all Republicans voted against the payroll tax hike when the bill came up for a vote, a few Republicans did support the overall budget, of which some were critical. “I think it’s really bad optics.” said Jacob Posik, MPI’s director of communications, who added that Republicans “should not have clapped for the budget signing.”
While payroll taxes are collected and remitted by employers, their cost is borne by employees. A 2021 Congressional Budget Office paper found that workers bear almost 60 percent of the payroll taxes that are collected by employers.
It’s unfortunate for Maine taxpayers that they’ll be hit with a tax hike at a time of historically high inflation and considering the state already has a relatively high tax burden. The good news, however, is that Maine is an outlier and that lawmakers in most states are heading in the opposite direction by reducing income tax rates and lightening tax burdens.