December 10, 2018
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Maine’s economy cannot afford Question 1’s tax hike

George Danby | BDN
George Danby | BDN

This November’s State House, congressional and gubernatorial elections will easily gain the most attention from the news media, but Maine taxpayers should be aware of an equally consequential election: Question 1.

Should the measure be approved, it will amount to the largest tax increase in state history and slam the brakes on economic growth. Despite the claims by proponents that this measure will benefit many Mainers, this unprecedented tax hike would not benefit the people who need help. Small businesses and taxpayers can ill afford a larger tax burden, and voters should swiftly reject Question 1.

Question 1 raises taxes by more than $300 million with a new 3.8 percent state payroll tax on families and individuals earning an adjusted gross income above $128,400. The tax will be split equally with 1.9 percent assessed directly on workers and 1.9 assessed on employers. Every dollar generated through this tax will be used to fund a deeply-flawed universal home care program for seniors and people with disabilities, regardless of their income.

[Opinion: Question 1 will raise taxes and create new, unnecessary bureaucracy]

This tax hike will have the most impact on small businesses and those with a pass-through income, because they will be responsible for the entire 3.8 percent tax. Many LLCs, sole proprietors, partnerships and family-owned corporations will be on the hook. Taking capital out of the lifeblood of the Maine economy is risky, as it makes it more difficult for existing business to stay afloat or expand and erects a barrier for entrepreneurs trying to enter the market.

Politicians on both sides of the aisle recognize the alarming ramifications should this measure be approved, which is why all gubernatorial candidates — the Democrat, Republican and two independents — have publicly opposed the referendum. Taxpayers should also be aware that this proposal is just the latest attempt by activists working to raise taxes for a policy experiment.

A recent report from the state economist plainly states that “the proposed tax would have a negative effect on the Maine economy,” limiting individual prosperity and stunting economic growth. The findings show that the largest tax hike in Maine history would reduce GDP, directly cause thousands of residents to flee, lead to job losses and reduce wages.

Mainers already suffer from the third-highest tax burden in the United States, and the last thing they need is to have government take an even bigger slice out of their paychecks.

While it may be politically expedient for activists to launch a “tax the rich” campaign, it is clear that the wealthiest already pay the lion’s share of individual income taxes. The top 20 percent of filers contribute 75 percent of all income tax collections for Maine, according to Maine Revenue Services. Additional tax increases on this group will only increase the likelihood that this small, but significant group of taxpayers will flee the state in search of a more tax-friendly environment. If that scenario plays out, it will either shift a greater tax burden onto middle- and lower-income taxpayers, force spending cuts to offset the drop in revenue, or put spending on the state “credit card.”

[Opinion: Home care referendum a necessity for Maine]

The evidence that this tax will have severe economic consequences is overwhelming, but voters should know that the proposed universal home care program has serious flaws.

To start, the measure allows all Mainers, regardless of income, to qualify for services. Without means testing, it’s possible that the well-off could receive services intended for those with limited means and even be served first. Second, the proposal requires providers and community support services participating in the program to spend a minimum of 77 percent of the funds they receive on “direct service workers’ costs.” Since the majority of tax dollars go to paying for service workers, only a small portion of the expenditures actually supports the program.

Higher taxes will stunt economic growth, drive people out of state and harm those this measure is trying to protect. To ensure greater prosperity in the Pine Tree State, voters should promptly reject Question 1.

Thomas Aiello is a policy and government affairs associate with the National Taxpayers Union, a nonprofit dedicated to fairer and lower taxes at all levels of government.

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