Governor Janet Mills’ proposed budget has sparked debate over Maine’s tax increases and spending priorities. One of the most controversial proposals is the rollback of a tax break on pension income passed with bipartisan support three years ago. Under the current law, the amount of tax-free pension income has been gradually increasing, from $10,000 to about $46,000 last year.
It is scheduled to rise again this year. However, Mills wants to scale back or eliminate this tax break entirely for about 22,000 Maine retirees with more than $100,000 in annual pension income. Mills argues that the increases in the pension deduction are not sustainable, noting that it had only been increased once over 14 years before the recent changes.
Her spokesperson, Ben Goodman, said, “The Governor’s proposal maintains the full deduction for low- and middle-income retirees while reducing it for higher-income people and phasing it out entirely for the highest earners.
Republicans initially sponsored the pension tax break and criticized the proposed rollback. House Minority Leader Bill Bob Faulkingham said, “It’s disappointing that a good policy to let people keep more of their pensions without taxes is now gutted to fund reckless spending.
Senate Minority Leader Trey Stewart called the proposal “moronic,” arguing that it could drive wealthier retirees out of the state.
Pension tax proposal sparks debate
He said, “$100,000 isn’t as much as it used to be, thanks to the rampant inflation brought on by Democrats.”
Advocates for progressive tax reform, such as the Maine Center for Economic Policy, support the change. Maura Pillsbury, MCEP’s state and local tax policy analyst, said most pensioners would not be affected by the proposal, as it focuses on phasing out the deduction for wealthier retirees while preserving it for those with low and moderate incomes. The pension tax break is just one of several tax increases included in Mills’ proposed budget, which she says is necessary now that revenues can’t keep up with the costs of state programs.
Other proposals include increasing the cigarette tax by $1 per pack, making streaming and videoconferencing services subject to the state’s sales tax, and imposing new taxes and fees on non-municipal ambulance services and prescriptions. Negotiations on the next two-year budget have barely begun, but Republicans have already said they will oppose any tax increases. They argue that the state has a spending problem, not a taxation problem, and have called for Democrats to cut spending to balance the budget.
As the debate continues, the fate of the pension tax break and other tax proposals in Mills’ budget remains uncertain. The outcome will have significant implications for retirees and taxpayers across Maine.
