Former Republican Gov. Paul LePage is taking a new tack in his quest to reduce and ultimately eliminate the state’s income tax – a key talking point in his campaign to unseat Democratic Gov. Janet Mills this fall.

LePage told reporters at a Maine Republican Party “Unity Rally” in Lewiston last month that he no longer wants to start by reducing taxes for upper-income brackets and does not intend to make up for the lost state revenue by increasing the sales tax, both of which he unsuccessfully pursued as governor.

Instead, LePage says he would begin by exempting all seniors from income taxes and then phase out income taxes for others from the bottom up by increasing the amount of income that is tax-exempt each year. 

And rather than increasing sales and other taxes to make up for lost revenue, LePage said he expects increased economic activity resulting from more people staying in Maine or moving back from zero-income tax states such as Florida would make up for half the cost. Unidentified budget cuts would make up the rest, he said.

“First year: seniors, no more income tax. That’s my first one,” LePage said. “We might look at the top rate, but I think the way to get rid of the income tax is, rather than look at the rate, increase the exemption.”

It’s unclear what triggered the changes to LePage’s income tax plan, but his previous strategy failed when he was in office in part because of opposition within his own party to raising the sales tax. It also comes as LePage has sought to soften his image as he courts independent voters he will need if he is going to unseat Mills and earn an unprecedented third nonconsecutive term in office.

Like other critics of the income tax, LePage argues that eliminating it will create economic growth by encouraging more people to stay in the state, including high-income earners.

“We have so many of our seniors that leave us for six months and a day because of the income tax,” LePage told Lewiston Republicans. “We’re losing their capital, their intellectual capacity that help(s) our small businesses. Their children will want to follow when their parents and grandparents leave. It’s a domino effect and we need to stop it. You can all go to Walt Disney in January and February, but the other 10 months, stay in Maine and help us become very prosperous.”

Opponents, however, argue that eliminating the income tax will blow a hole in the state budget, requiring drastic cuts to services and staff and forcing increases in sales and property taxes, which disproportionately affect people with lower incomes. And people would still leave the state to escape winters, they say.

Mills has not pursued any major shakeup in the state’s overall tax structure, but has moved to reduce tax burdens on seniors and lower-income taxpayers and relieve pressure on property taxes, including by increasing the share of education costs paid for by the state.

Mills’ staff did not respond to requests to interview the governor for this story or respond to the details of LePage’s new plan.

As part of a bipartisan budget plan passed in April, Mills returned half of a projected $1.2 billion revenue surplus to most taxpayers, reduced income taxes for retirees and increased funding for property tax relief and the Earned Income Tax Credit.

In addition to sending $850 checks to qualifying taxpayers to help deal with inflation, Mills and the Legislature reduced income taxes for public and private pensioners by increasing the deductions for residents from $10,000 to $25,000, providing $36.8 million in tax relief next year that will average $560 per person. By 2025, that deduction will increase to $35,000 per individual, which would mean average savings of about $795 per person.

The budget deal also includes an additional $7 million in additional property tax relief for about 100,000 low- and middle-income homeowners and renters, who are eligible for up to $1,000 a year or $1,500 a year for seniors.

Mills also worked to increase the Earned Income Tax Credit, which provides a refundable tax credit to working Maine people and families. That’s estimated to help 100,000 Maine people with incomes of less than $57,414, by increasing the maximum benefit by an average of $400 per family, bringing the total EITC benefit per family to an average of $764 per year.

Campaign manager Alexandra Raposo also said that Mills has “resisted efforts by members of her own party to increase taxes on the Maine people.”

“The bottom line is that Governor Mills has cut taxes and put more money back into the pockets of Maine people – especially hard-working middle class Mainers – while ensuring that the budget is balanced and that the State meets its obligations to deliver crucial services,” Raposo said. “She is not interested in repeating LePage’s tax shift scheme where he claimed to cut taxes for Maine people when he really just shifted their tax burden.”

Reducing and eliminating the income tax has been a longstanding – and elusive – goal for LePage, who ran into opposition from his own party during his eight years as governor.

LePage and the Republican majority in the Legislature successfully lowered the top income tax rate from 8.5 percent to 7.15 percent in 2013. But efforts in 2015 to further reduce or eliminate the income tax faced opposition from both Republicans and Democrats, because it would have required an increase in sales taxes to make up for the lost revenues. That proposal would have lowered the income tax rate to 5.75 percent by 2019, at a cost of $1.8 billion a year, which LePage sought to offset by increasing the sales tax from 5.5 percent to 6.5 percent.

The sales tax had increased from 5 percent to 5.5 percent as part of the 2013 budget, which was adopted after the Legislature overrode a LePage veto. That increase was meant to be temporary, but was made permanent in 2015, once again in a budget adopted despite a LePage veto, who vowed to veto all legislation until the Legislature passed a constitutional amendment to eliminate the state’s income tax.

Last month, LePage downplayed the possibility of sales tax increases to make his plan work.

“I don’t think we need to,” he told reporters in Lewiston. “Now that I saw what happened when we reduced – we went from 8.5 (percent) down to 7.15 in the income tax and the next year, revenues were historical revenues and what we learned was every dollar we cut in taxes, 96 cents comes right back into your economy. So it grows the economy.”

“I’m not saying there isn’t some adjustments that need to be made,” he added, “but I don’t believe it should be on the backs of our elderly.”

Lucy Dadayan, a senior research associate for the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, called LePage’s plan to phase out the income tax an election-year gimmick and irresponsible, given an uncertain economic outlook that includes a possible recession looming on the horizon. She said about a dozen states have moved to reduce income taxes in the last few years, which she expects to be temporary, especially if a recession takes hold.

“We are in a very uncertain fiscal time,” Dadayan said. “It’s important to keep in mind that the sectors that led to revenue growth are likely temporary and that states should not be making drastic decisions with budgets and should be mindful about fiscal uncertainties. We might already be in a recession. We already see a declining or volatile stock market which will definitely have an impact on income tax revenues on the state budget. I think no drastic measures should be taken in a time of uncertainty.”

Seven states, including Florida, Texas and Alaska, have no income taxes. New Hampshire and Tennessee only tax capital gains, though they recently decided to eliminate that tax, Dadayan said. Such a move would be difficult for Maine, she said, because historically at least a third of the state’s revenue comes from income taxes and the state lacks an alternative special revenue source, such as the oil industry in Texas and Alaska.

Income taxes provide roughly $2 billion a year to the state, or 44 percent of all revenue. Eliminating income taxes for people over the age of 65 could cost as much as $441 million based on 2020 tax information, according to the state’s budget agency.

Dadayan pointed to Kansas as a cautionary tale, adding that studies have repeatedly shown that income tax cuts don’t usually generate the additional economic activity promised.

In 2012, Republican Gov. Sam Brownback signed a bill ushering in the largest tax cut for businesses and individuals in Kansas’ history, eliminating about $230 million in taxes during the first year and a projected $935 million annually after six years. The legislation was drafted by the American Legislative Exchange Council, a conservative think tank. But increased economic activity did not replace the lost revenue in the short term, as Brownback promised, forcing the Republican Legislature to roll back the tax cuts in 2017.

A report published in 2015 by the Center on Budget and Policy Priorities, a progressive think tank, concluded that income tax cuts have not proved to generate economic growth. The report mentioned Maine as one of the states to have cut income taxes based on this assumption.

“This approach is not supported by the preponderance of the relevant academic research and has not worked particularly well in the past,” the report states. “The states that tried deep income tax cuts over the last three decades have not seen their economies surge as a result.”

LePage argues that Maine’s income taxes are a big reason why retirees move to Florida for “six months and a day” and that eliminating them would keep more retirees here and even encourage them to move back. He concedes that retirees may still go to Florida to avoid the cold, snowy months, but their additional months in Maine will help fuel the economy, creating more revenue for the state.

In fact, LePage moved to Florida shortly after leaving office in 2019, citing the lack of income taxes as a reason. He re-established residency in Maine in 2020, with the goal of challenging Mills this fall.

Mike Santo, a certified public accountant and chairman of the Maine Society of CPA’s Taxation Committee, said that income and other taxes do play a large role in retirement planning for upper middle class and wealthy retirees, especially those who are looking to sell a business. For example, he said, someone earning $100,000 in retirement could save $7,000 a year by moving to Florida.

But other factors – such as the climate and personal circumstances – also play a big role.

“Most of these people are older and they just don’t want to be here when it’s cold,” Santo said. 

Santo said that eliminating the income tax could entice more retirees to maintain their Maine residency, but it’s difficult to say whether enough people would do so to make up for lost state revenue.

“They might still be going to Florida for a few months, but they may be coming back sooner because they’re no longer worried about that six months and a day rule,” he said. “It’s definitely tough to say that if all of the people coming back would make up that 50 percent of lost revenue from income taxes.”

Rep. Sawin Millett, R-Waterford, whose expertise on the state budget is respected by both Republicans and Democrats, acknowledged LePage’s shifting rhetoric on income taxes and recent calls for a bottom-up phaseout.

“That is a new focus this year,” Millett said. “It’s always good to avoid having to tax people who are living hand to mouth. If the number is a reasonable number – somewhat below a livable wage – I think it does make sense.”

Millett said it’s a “legitimate idea” that the income tax cuts could generate more economic activity to help offset revenue losses. But it would be difficult to put that plan into motion in terms of the budget, he said, because the budget process does not allow for predictions about how people will behave if income taxes are reduced or eliminated.

“We don’t do dynamic fiscal notes. In other words, you can’t really book savings based on taxpayer behavior that hasn’t yet occurred,” Millett said. “You can’t do that without evidence that they have returned before you can actually book it.”

While LePage predicts that increased economic activity would cover half of the lost revenue, he also vowed to make up the other half by cutting government waste, which he says includes a significant part of the state’s workforce.

During his first two terms, LePage targeted safety net programs, such as General Assistance and other welfare programs, for cuts, as well as municipal revenue sharing, which added pressure to local property taxes.

In interviews after the Republican rally last month, LePage said he would target the state’s workforce, saying he saved the state $275 million by reducing the state’s workforce from 14,300 workers to 11,900. He said one area for possible cuts would be the Department of Transportation.

“State employees – we have way too many,” LePage said. “We’re not an employment agency. What we should be doing is having efficient workforce and we should have people going to work. We have to become efficient as a government and we’re no longer efficient because people work remote. So somebody has got to get back on top and see where the waste is. There is a lot.”

Raposo, Mills’ campaign manager, said the governor is open to ideas while criticizing LePage’s budget management.

“The fact is, when LePage says he would cut ‘government waste,’ Maine people know that he means he’ll come after health care, education, and public health, all of which were either cut, outright denied, or underfunded while he was governor, and all of which Gov. Mills and the Legislature have fought to restore or properly fund,” she said. “Gov. Mills remains open to real tax cut proposals that truly reduce costs for Maine people while maintaining the critical services they rely on.”

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