Maine’s Proposed Millionaire’s Tax Would Undermine Economic Growth
"Maine's proposed millionaire's tax would bring Maine's top income tax rate to 9.15 percent, dealing a blow to the state's economic competitiveness."
Source: Tax Foundation
Maine is currently considering a policy that, on the surface, might appear to generate additional revenue for public services. But a closer look at the numbers reveals a far more complex — and costly — reality. The proposed "millionaire's tax," which would raise the top income tax rate to 9.15 percent for individuals earning more than $1 million annually, is not a financial windfall for the state. Rather, it’s a potential drag on business investment, talent retention, and overall economic performance.
For businesses — particularly those in the professional, financial, or consulting sectors — this tax could have a cascading effect. Consider a mid-sized firm in Portland that employs 150 professionals, including several high-earning partners. If one of those partners, earning $1.2 million annually, is now subject to a 9.15 percent tax — up from the current 7.95 percent — their personal tax liability would rise by approximately $12,600. That may not sound like a lot in isolation, but it's part of a broader cost structure that could influence major decisions.
High-net-worth individuals are often key decision-makers, investors, and clients in many industries. If they sense a new tax burden, they may reduce spending, delay capital commitments, or even relocate their operations to more tax-friendly jurisdictions. According to economic modeling, a tax increase like this could reduce overall state income by up to 0.75 percent in the long run, which translates to roughly $180 million in lost economic activity annually.
From a business compliance perspective, the new tax also complicates payroll and tax reporting. Employers will need to track income thresholds more precisely, ensuring that payroll systems and tax filings are adjusted accordingly. This adds administrative overhead — not just in terms of labor, but also in the potential for errors. For example, misclassifying income or failing to withhold the correct amount could lead to underpayment penalties, which can run up to 25 percent of the unpaid tax liability. For a business with multiple high-earning employees, that could quickly translate to six-figure liabilities.
Moreover, the tax doesn’t just affect individual employees — it could also influence how businesses structure compensation. Many firms use performance bonuses, stock options, and deferred compensation to attract and retain top talent. The increased tax burden may lead to shifts in these strategies, such as delaying payouts or shifting compensation into non-taxable benefits like health or retirement plans. While this may seem like a workaround, it often results in less liquidity for employers and can distort incentive structures that drive performance.
Let’s also consider the impact on workers’ compensation. In Maine, as in most states, workers' compensation premiums are tied to payroll costs. If a business is under pressure to reduce taxable income due to higher state tax rates, it might look for ways to reduce payroll expenses — perhaps through reduced hiring, lower wages, or automation. These moves could reduce the overall risk exposure (and thus the premium base) in the short term, but they could also stifle job creation and workforce growth, which in turn could slow long-term economic recovery.
In the grand scheme of state fiscal policy, the ROI of this tax appears weak. The Tax Foundation estimates that the tax would generate only $43 million in new revenue annually — a fraction of what it could cost in lost economic opportunity. Worse, if the tax triggers a migration of high-income earners to lower-tax states like Florida or Texas, the state could face a long-term revenue shortfall.
For business leaders, the message is clear: tax policy isn’t just about raising revenue — it’s about managing risk and ensuring that the cost of doing business doesn’t outweigh the reward. Maine has an opportunity to grow its economy by maintaining a competitive tax structure, not undermining it.
