Will Maine Expand Sales Tax Base in 2015?
- Jan 6, 2015 | Gail Cole
It is sometimes said that people leave Maine in order to escape the state’s tax policy, which includes the ninth highest income tax rate in the nation. Many move to neighboring New Hampshire, which has no income tax. Recently re-elected Governor Paul LePage may try to lure departed Mainers back home by eliminating that individual income tax. In exchange, he would broaden the sales tax base.
Eliminating the income tax would remove approximately $1.3 billion from state coffers. In order to replace that revenue, sales tax would have to be expanded to many currently untaxed goods and services. Alternatively, the rate would have to rise again, as it did back in October 2013. The current 5.5% state sales tax rate is temporary and expected to drop back to 5% on July 1, 2015.
According to the Tax Foundation, Maine’s individual income tax accounted for approximately 46% of the state’s general fund revenue in FY 2013. Replacing that much revenue with sales tax is a tall order. Maine’s current “very narrow” sales tax base could work in favor of the suggested expansion. Political and popular opposition could work against it.
If revenue could remain at current levels, the proposal may have traction. Yet opponents argue that raising taxes for middle and low-income tax is not the solution. Compromise, in the form of lower income taxes and a limited expansion of the sales tax base, could be the solution.