Governor Paul LePage of Maine recently released his proposed 2018-2019 budget, in which he proposed to institute a flat income tax rate of 5.75% by 2020.

As we reported in Tax Alert 2016-2048, the governor pledged to include in his budget proposal a reduction in the income tax rate to mitigate the effect of the 3% surcharge on high-income earners approved by Maine voters in November 2016.

In his 2017 supplemental and 2018-2019 biennial budget briefing, the governor called for a one-year delay in the imposition of the surcharge (already built into the 2017 withholding tables). He then called for a simplification of the Maine tax code by reducing the number of rate brackets from three to two for 2018-2019, with a 5.75% bottom rate (including surcharge) and 6.15% top rate. In 2020, he proposes that the state adopt a flat 5.75% income tax rate (2.75% plus the 3% surcharge) on all income.

Other tax related proposals include:

— Increasing the exemption for pension income from personal income tax from the current $10,000 to $35,000 per year
— Increasing the child and dependent child care tax credit from 25% to 50% of the federal credit
— Reducing the top corporate income tax rate from 8.93% to 8.33%
— Eliminating the estate/inheritance tax
— Increasing the lodging tax

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