Earlier this summer, Maine’s Democratic-controlled legislature passed a nearly flat 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. of 6.5 percent with a small surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. kicking in on incomes greater than $250,000. Previously, the top income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. was 8.5 percent. The loss of revenue from the tax cut is covered by an expansion of 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 include additional services.
Groups opposed to the change are collecting signatures for a referendum and to use the “people’s veto” to stop this legislation. Maine has successfully used the ballot box to roll back taxes as with last year’s repeal of the soda tax
The Green Party has said they hope to launch a new campaign called “No Flat TaxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. of ME”. Their complaint is that new plan raises taxes on the lower incomes. It should be noted that this does not take into consideration credits added to the income tax.
The Maine Heritage Policy Center has critiqued the policy from opposite end of the spectrum saying that reform does not do enough to flatten the tax code. MHPC shows that when one looks at the effective marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. taking into consideration the credits and deductions the tax on income is far from flat.
If the “people’s veto” passes this November, these groups will have to set aside difference in order to push tax reform.
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