A wave of state-level tax increases targeting top earners is gaining ground across the country, and Maine has now joined it — putting a fresh burden on high-income residents and small business owners while stoking a broader debate over whether taxing the wealthy helps states or drives them away.
Gov. Janet Mills signed LD 2212, a $519 million supplemental budget bill, into law this month, adding a 2% income tax surcharge on the portion of taxable income exceeding $1 million for single filers and $1.5 million for joint filers and heads of household.  The surcharge pushes Maine‘s top marginal income tax rate from 7.15% to 9.15%, affecting an estimated 2,600 filers — fewer than half a percent of the state’s taxpayers — and is projected to raise $160 million over two years. 
The law was not in Mills’ original budget proposal. Mills had long opposed income tax increases before reversing course amid a contentious Democratic primary race for Maine‘s U.S. Senate seat.  She signed the budget at Eastern Maine Community College in Bangor, spotlighting the bill’s permanent funding of the state’s free community college program, which has served more than 23,000 students since 2022.  The broader package also includes $300 one-time affordability checks for lower-income residents, expanded property tax credits, a statewide ban on cellphones in schools, and increased minimum salaries for public school teachers.
Maine is not moving alone. Washington state enacted its own millionaire tax law last month, and Maine and Washington are among the latest Democratic-led states to seek more revenue from high earners as national wealth inequality widens and state budgets face mounting pressure.  New Jersey imposes a top income tax rate of 10.75% on millionaire earners, and states including New York, Illinois, and Michigan are examining or facing stalled proposals along similar lines. 
The business community in Maine is pushing back. Patrick Woodcock, president and CEO of the Maine State Chamber of Commerce, argued that with the state’s population growth already stagnant, the surcharge creates a disincentive for high earners to call Maine home — particularly at a moment when many competing states are cutting taxes, not raising them.  Maine‘s 160,000 small businesses employ 55% of all workers in the state, and the overwhelming majority are structured as pass-through entities — meaning business income flows to owners’ personal returns and is subject to the new surcharge.  Critics argue the measure functions less as a tax on idle wealth and more as a tax on entrepreneurship and local investment.
The Tax Foundation’s Jared Walczak noted that 23 states have reduced their top marginal income tax rates since 2021, while six have gone in the opposite direction — creating a widening competitive gulf that increasingly rewards lower-tax states. 
Supporters counter that the system as it stands is already tilted against working people. The left-leaning Institute on Taxation and Economic Policy noted that while Maine‘s tax structure is progressive through most of the income distribution, it turns regressive at the top — meaning the wealthiest 5% of earners were paying lower effective state rates than many working-class Mainers before the new surcharge.  State Rep. Cheryl Golek, a Harpswell Democrat who originally sponsored the millionaire’s tax as a standalone bill, framed the surcharge as a modest and widely supported step toward fairness, arguing that those who benefit most from Maine’s economy do so because of the people, infrastructure, and communities that support that success. 
Amber Wallin, executive director of the State Revenue Alliance — which is actively lobbying for higher taxes on the wealthy across multiple states — argued that recent federal policy changes have only deepened the need for progressive state tax action, and that public engagement on the connection between tax policy and income inequality is growing. 
For business owners and high earners in Maine, the math is immediate: a resident with $1.5 million in annual income now owes an additional $10,000 in state taxes compared to last year. Whether that calculus ultimately shifts behavior — moving investment, residency, or business formation out of state — is the question that will define whether Maine’s bet pays off or costs it more than the $160 million it expects to collect.
JBizNews Desk.
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