Democratic Governors Thwart Progressive Income Tax Hikes In Blue States

President Joe Biden’s proposed tax increases are running into resistance from lawmakers in his own party, but in a number of blue states it is the reverse dynamic, with Democratic chief executives blocking tax hikes proposed by progressive legislators. At the same time the Biden White House is having trouble convincing congressional Democrats to pass 30 proposed tax hikes, Democratic governors in the northeast are thwarting efforts by legislative Democrats to enact income tax increases. 

In Maine, where Democrats control both chambers of the state legislature, lawmakers are trying to pass LD 498, legislation to impose a progressive income tax hike. LD 498 would raise the state’s top income tax rate from 7.15% to 10.15%, a more than 41% rate increase that would apply to filers with annual income above $200,000. Marketed as a tax hike targeting wealthy people, this proposed income tax hike would hit thousands of small businesses across Maine, most of whom file under the individual income tax system. 

That’s not the only tax hike pending right now in Maine, where lawmakers have also introduced a bill to raise the personal income tax rate from 7.15% to 8.93% and the corporate rate from 8.93% to 12.4%. As with LD 498, these tax hikes would reduce the job-creating capacity of Maine’s small businesses.

Maine taxpayers already contend with the nation’s 12th highest state and local tax burden and Governor Janet Mills (D) is trying to stop that burden from rising further, at least this session. As the Maine Wire recently reported, “Mills pledged not to raise taxes during her gubernatorial campaign, and her opposition, particularly to LD 498, has put her at odds with progressives in her own party.” 

As in Maine, Democrats in Connecticut control both chambers of the state legislature and the governor’s mansion. As in Maine, legislative Democrats in Connecticut are trying to impose a tax hike on upper income households, while a Democratic governor is standing in their way. As part of the new budget deal approved in early June, Connecticut lawmakers gave up on their months-long effort to pass a more than 25% capital gains tax increase along with an income tax hike aimed at upper income filers. 

“Why would you want to raise taxes when you don’t have to?” That rhetorical question was Governor Ned Lamont’s (D) inititial response to legislative Democrats earlier this year. Indeed, Connecticut lawmakers do not need to raise taxes to balance the budget. The Hartford Courant recently reported on Connecticut’s rosy budget projections, which show “the state’s budget picture is far better than the recent past with a projected surplus of more than $500 million in the current fiscal year, a projected rainy day fund of $4.5 billion later this year, and better-than-expected tax collections due chiefly to a series of records on Wall Street over the past year.”

Connecticut lawmakers also dropped a proposed tax hike on health insurers and a controversial digital tax as part of the new budget agreement. “It’s balanced with no new taxes,” Governor Lamont said of the deal. 

Yet, while Governor Lamont convinced Democratic legislators to drop the tax hikes they were seeking, legislators were able to talk Governor Lamont into backing off a regressive tax hike that he was championing in the form of a cap and trade program referred to as the Transportation and Climate Initiative (TCI). TCI is a regional cap and trade scheme led by Massachusetts Governor Charlie Baker (R) and the Georgetown University Climate Center that, had it been implemented in Connecticut as Governor Lamont called for, would’ve translated into higher gas prices for Nutmeg State drivers, which would act as a regressive tax hike disproportionally harming low income households. 

Aside from the regressive nature of TCI, many opponents of the program point out that it is a solution in search of a problem, as transportation emissions are projected to decline even without TCI. 

“Although both TCI and the Lamont administration tout a 26% reduction in emissions over ten years, TCI acknowledges that emissions are estimated to decline ‘naturally’ by 24% due to increased vehicle fuel efficiency and electric vehicle usage,” notes the Yankee Institute’s Marc Fitch.

While Governor Lamont failed to enact TCI, he did approve a highway use tax commonly referred to as a truck tax. Connecticut Republicans applauded the avoidance of most tax hikes as part of the new state budget. GOP lawmakers also took credit for helping defeat the many tax hikes that were being considered this year.  

“The governor started out wanting new taxes on gas, food and health insurance,’’ Senate Republican leader Kevin Kelly and Representative Vincent Candelora, the leading Republican in the Connecticut House, said in a joint statement. “Democrats wanted over $3.2 billion in new taxes on income, mileage, houses, and jobs. Today, they tell us all those taxes are out of the budget. So what changed? Republicans rallied around our state saying no to any new taxes.” 

As recent developments in Connecticut, Maine, and other blue states demonstrate, just because Democrats have unified control of government, doesn’t mean they need to raise taxes. That is a lesson that many taxpayers, particularly employers seeking to recover from the pandemic-driven downturn, hope a majority-blocking number of congressional Democrats soon learn and apply at the federal level.

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