(Editor’s Note: This column originally appeared in the Portland Press Herald.)
Earlier this year, significant changes were made to the federal tax code with the signing of the Working Families Tax Cut Act. These changes include the exclusion of up to $25,000 in tip and overtime income from federal taxes, an increased standard deduction for all filing statuses, a new $6,000 additional standard deduction for seniors, and a deduction for car loan interest.
The legislation, passed by Congress and signed by Pres. Donald Trump in July, hit the right targets – our nation’s working class and seniors. It cut about $600 in taxes for the average American household and made permanent middle-class tax cuts Trump enacted during his first term, which, if left expired, would have cost the same household up to $2,900 in additional taxes.
When major changes like these are made at the federal level, Maine typically follows suit by passing our own legislation to have Maine’s tax laws conform with the federal Internal Revenue Code (IRC). This is called static conformity. We do this because the State bases the marginal tax rate on what the adjusted gross income (AGI) is on the federal income tax form plus or minus modifications made on the state return according to our own tax code.
It’s not rocket science; and most of the 42 states that have individual income taxes (Washington only taxes capital gains) do it this way. But what happens when these changes are made in the middle of the year and we need to get ready for the next tax filing season? Well, we passed a law for that as well.
Under the authority granted to her under recently enacted legislation, Governor Janet Mills issued a directive and determination declining to adopt some of those major federal provisions for Maine’s 2025 tax returns that will be filed starting in January. It means tips and overtime will still be subject to Maine’s income tax, and the State will decouple from the increased standard deduction amounts. And according to her, you can also forget about the car loan interest.
In her directive, the Governor was very clear her decision was not “the end of the discussion of conformity to the new federal tax law.” She cited the need for more revenue and economic data, as well as the necessity of legislative action.
Now we have the data. The Revenue Forecasting Committee met on Monday and increased revenue projections by $248 million for this biennium. This increased projection comes after legislative Democrats pushed through numerous tax and fee increases in the last biennial budget.
With this increased revenue projection, it’s beyond time for the Legislature to take action to reduce the tax burden on Mainers. Unfortunately, the Legislative Council, which is composed of legislative leadership from both chambers, rejected consideration of one measure that would do just that.
In a party-line vote, the Legislative Council voted to reject a tax conformity legislative request (LR) from Sen. Jeff Timberlake, R-Androscoggin. Sen. Timberlake’s proposal would conform Maine fully to the federal tax code, providing substantive relief for the 2025 tax year and beyond.
The tax provisions Democratic leadership rejected are targeted toward the Mainers who need relief the most. For working Mainers, a deduction for tips and overtime could be life changing. And with the deduction income limits, this change would truly only be a cut for working- and middle-class Mainers.
For our seniors, an extra $6,000 could enable them to withdraw more funds tax-free from their retirement accounts to keep up with rising expenses and property taxes. And with interest rates above five percent, Mainers also desperately need the relief provided by a deduction for their car loan interest.
When the Legislative Council rejected the tax conformity proposal, one member asked if that bill was the only possible vehicle for tax conformity. While the Department of Administrative and Financial Services (DAFS) has submitted multiple bills to the Legislature, it’s fair to say the Department won’t be undermining the Governor’s own decision on tax conformity for this tax year.
Our state’s budget has grown from $7.2 billion when Governor Mills took office to $11.6 billion in the current biennium. Instead of continuing to raise taxes, let’s use this excess revenue to conform fully with the new federal tax provisions and provide long-overdue relief for Maine’s taxpayers.
Senator Bruce Bickford represents Auburn, Durham and Poland in Androscoggin County and New Gloucester in Cumberland County. He is the Senate Republican lead for the Legislature’s Taxation Committee. He served in the Maine House of Representatives during the 124th – 125th Legislatures and the 127th – 130th Legislatures.
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