Maine Democrats Seek to Join Maryland as Tax-Hiking Outlier

Governor Wes Moore (D-Md.) signed a new state budget into law last month that raises Maryland’s top income tax rate and also imposes a 2.0% surtax on capital gains income above $350,000.  In doing so, Governor Moore and the Democrat-led state legislature have made Maryland “a national outlier that is not indicative of the direction in which most states are heading when it comes to tax policy,” ATR’s Patrick Gleason wrote in an article published to Forbes.com on June 10. While Governor Moore and his fellow Democrats in Annapolis decided to balance their budget this year with higher income tax rates, Gleason points out that most states “have been moving in the opposite direction for years, a trend that has continued in 2025.” 

“Governors and lawmakers in Oklahoma and Mississippi, for example, enacted legislation this year that will completely phase out their state income taxes over time,” Gleason added. “The South Carolina House also passed legislation this spring to phase out their income tax, which the state Senate will take up in January. Just this week, the Republican-led Ohio Senate passed a new state budget that moves the state from two income tax brackets with a top rate of 3.5%, down to a single rate of 2.75%.” 

Democratic lawmakers who control the Maine House and Senate are now seeking to join Maryland as a tax hiking outlier. On June 12, Maine lawmakers passed LD 229 and LD 1879, legislation that will raise personal and corporate income tax rates. At present, Maine has a progressive income tax code with rates of 5.8%, 6.75% and 7.15%. LD 229 would create two new top tax brackets with rates of 7.75% and 8.95%. LD 1879, meanwhile, imposes a 1.7% corporate surtax, bringing Maine’s top corporate tax rate as high as 10%. 

Governor Janet Mills (D) vetoed a similar proposal last year that would’ve imposed a new 8.45% top rate for upper-income filers. Many expect Governor Mills, whose staff testified against LD 229, to veto this latest income tax hike. 

“As the Governor has alluded to on a number of occasions, raising the top marginal income tax rate too high will continue driving away the engines of economic growth – businesses and their employees – to pro-growth states like next-door New Hampshire,” noted Governor Norquist, president of Americans for Tax Reform, in a letter sent to Maine legislators. 

“Indeed, New Hampshire just eliminated its state income tax, joining seven other states in that growing club,” Norquist added. “Meanwhile, states across the nation continue following in the Granite State’s footsteps by reducing and phasing out their income taxes. Twelve states have already enacted income tax cuts this year alone, with Indiana, Kentucky, Mississippi, Oklahoma and others continuing along the path to zero, and Kansas moving to a flat 4%. Maine must not put itself at a competitive disadvantage by spiking the top tax rate as the race to zero picks up steam.”

Another pending tax threat in Maine, one that has Governor Mills support, is the proposal to raise the tobacco excise tax. Governor Mills proposed raising the state cigarette excise tax by a dollar per pack at the start of the year. Last week, however, Maine legislators proposed a larger, $1.50 per pack tax hike. 

For the Maine Democrats who like to think of themselves as defenders of the downtrodden or “the little guy,” a regressive tax hike that disproportionately penalizes low-income Mainers, like the proposed tobacco tax hike, is an odd choice. Furthermore, if Maine Democrats don’t want people to smoke, making the state budget more reliant on people continuing to smoke is an odd approach. 

“No state is a total failure,” Norquist said, adding that “some, like Maryland and now Maine, serve as bad examples.”