Maine Republicans are pushing an idea — amplified by local media — that the recent trend of budget surpluses means the state is collecting more than it needs and should therefore cut income taxes.
But economists and some state lawmakers are pushing back, arguing that it would be unwise to slash revenue now given an uncertain economy and the numerous unmet needs Mainers still have today. These include housing, healthcare and behavioral health services, and child care and in-home care for seniors and people with disabilities.
“Is it really a surplus if we’re not paying for these really essential needs that Mainers have?” asked Maura Pillsbury, a state and local tax analyst with the Maine Center for Economic Policy.
The state has had record surpluses since the onset of the pandemic, due to federal COVID relief and increased tax revenues because of higher prices. This allowed Gov. Janet Mills and the Democratic-controlled Maine State Legislature to issue relief checks to residents last year and again last month to help with rising costs for consumer goods and energy.
Now, Republicans and some Democrats are seeking ways to permanently reduce the state’s income by changing the tax code with several bills submitted this legislative session to cut income taxes.
“We really don’t know what’s coming down the pike and a lot of challenges in both urban and rural areas will take significant new funding to address, including the opioid crisis and housing shortage,” Pillsbury said. “Cutting taxes could compromise our capacity to uphold our commitments to Maine people now and in the future.”
When asked about the clamoring by Republicans for income tax cuts, Democratic leaders pointed to the significant need that remains.
“Ultimately, what House Democrats want is a tax code that provides the resources for good schools, modern infrastructure, and community services that help our economy grow and make sure all Mainers have a chance at success,” House Speaker Rachel Talbot Ross (D-Portland) told the Portland Press Herald.
Similarly, a spokesperson for Senate President Troy Jackson (D-Allagash) said he “expects that lawmakers will ultimately proceed cautiously when it comes to the tax code and prioritize commitments already made to Maine people.”
In many ways, Maine has still not fully recovered from the austerity budgets signed by former governors John Baldacci and Paul LePage in the wake of the Great Recession of 2008, during which services were cut and state workers’ salaries languished. LePage and Republicans used the economic downturn to implement tax cuts for the wealthy and corporations and paid for them by freezing cost of living adjustments for retired state workers and teachers. Because state spending fell, Maine had one of the slowest economic recoveries of any state in the country.
Repairing the damage that occurred during the previous administrations has been slowed in part by Mills’ repeated pledge not to raise taxes, leaving in place LePage’s cuts favoring the wealthy. Today, many state employees’ wages are still not competitive with the private sector, resulting in workforce shortages with dire consequences for Mainers, such as seen in the state’s child protective services.
Mills and Democrats funded the state’s mandated 55%-contribution to public education for the first time in the 2021-2022 budget, but that was largely made possible by the $4.5 billion in relief the state received from the federal government through the American Rescue Plan Act (ARPA) that Congress passed in 2021. Because of surpluses and federal aid, lawmakers have also been able to fund programs that reduce the burden of property taxes, which hit low- and middle-income residents harder than their wealthy neighbors.
Rep. Joe Perry (D-Bangor), the House chair of the legislature’s Taxation Committee, said it would be premature to consider permanent tax cuts in response to the state’s unexpected fiscal strength after years of underfunding. Last year, lawmakers returned half of a $1.2 billion revenue surplus to Maine taxpayers in the form of $850 checks. Another surplus is projected this fiscal year.
“We essentially have the same tax code with a billion dollar surplus that gave us a billion dollar deficit not that many years ago,” Perry said, referring to a projection in 2012 that state spending would exceed revenue by $756 million after LePage’s tax cuts were passed the previous year. “So, to take a snapshot of where we are today and say the surpluses are ongoing and we can afford ongoing tax cuts — I’m not sure we can make that assumption right now.”
While Maine has put ARPA funds towards urgent needs like affordable housing, several Republican-controlled states have taken advantage of the one-time federal support to temporarily meet their budget obligations while they push for permanent tax cuts.
In Arizona, former Republican Gov. Doug Ducey approved a regressive flat tax.
In New Hampshire, Republican Gov. Chris Sununu has cut the Granite State’s business profits tax.
Economists warn that cutting state taxes based on temporary support from the federal government could set up future cuts in state services down the road.
Moreover, they say any cuts are squandering a historic opportunity to build state capacity. ARPA injected an unprecedented $350 billion into state and local governments, and it is unclear with a divided Congress when such support may come again.
“These states have or are on the cusp of finalizing regressive tax-cut packages that will not only make their tax systems more lopsided but also will blow an opportunity to shore up investments in education, infrastructure, and importantly, boost opportunities for those hit hardest by the economic and health crisis,” Marco Guzman, the senior policy analyst for the non-partisan Institute on Taxation and Economic Policy, warned in 2021.
“Choosing tax cuts over investments takes a page from an old playbook in which states race to the bottom on individual and corporate tax rates while claiming such policies boost economic growth,” Guzman continues.
“Such a shortsighted view ignores the value of states’ greatest assets — their people,” Guzman added. “Lawmakers should be smart about how they spend their state’s resources, especially since general fund revenue outlooks still remain below pre-pandemic estimates, even despite recent good news about collections.”