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Income Tax Reform Repealed by Referendum in Maine

2 min readBy: William Ahern

In a blow to state income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform, Maine voters threw out the tax reform enacted last year. As a result of Tuesday’s referendum, single wage earners with more than $10,050 in taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. will pay a higher income tax rate. Couples with more than $20,100 in taxable income will pay at a higher rate.

Income Tax Rates
Before the Referendum*

Income Tax Rates‡
After the Referendum

6.5% > $0*

2% > $0

6.85% > $250,000

4.5% > $5,050

7% > $10,050

8.5% > $20,150

* An increase in the standard deduction assured that no income taxpayer would pay more under the 2-rate system.
‡ Brackets shown for singles; they double for couples.

The retail and housing sectors led the successful campaign to abolish the new law and restore the tax breaks that they had enjoyed before enactment of tax reform. The income tax rate cuts had been financed by extending the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to previously untaxed services, raising the sales tax rate on lodging and meals, and eliminating the state-level mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. .

Maine’s top tax rate will now revert from 6.85 percent (18th highest in the nation) to 8.5 percent (9th highest).

BusinessWeek reported that the successful YES campaign for repeal was supported by a group called Save the Mortgage Interest Deduction which raised $222,589. The unsuccessful NO campaign to keep the income tax reform was supported by the Maine Chamber of Commerce and a political action committee called No Higher Taxes for Maine which raised $337,180 including $25,000 from Leon Gorman, chairman of famed retailer L.L. Bean.

Also see: Maine Rejects Tax Reform Measure