Yesterday, the Maine Legislature Joint Committee on Taxation held a hearing on L.D. 65, “An Act to Reduce the Income Tax on Capital Gains” sponsored by Rep. Richard Malaby (R-Hancock). Malaby has enlisted 9 Republican cosponsors of the measure. The fiscal impact of the proposal has yet to be calculated by the legislature’s Office of Fiscal and Program Review.
Malaby’s explained that his bill would tax income from asset sales at 3%, rather than as regular income. But he believes this would ultimately result in an increase of revenue to the state by spurring economic activity. It’s the same argument some in the Legislature have used to justify tax cuts on upper-income earners.
Following his presentation, Malaby took questions from committee members. Senator Doug Thomas (R-Ripley), who owns a firewood business, made an analogy of the capital gains rate being similar to him lowering his price of firewood to sell a greater volume. Thomas stated, and Malaby concurred, that Maine would “end up with more revenue because you reduce the price, then there will be more activity and the total volume will pick up enough to more than make up for the loss on rates.” It’s a classic tickle-down argument.
Senator Anne Haskell (D-Portland) and Representative Joseph Brooks (I-Winterport) expressed concerns about the ability to quantify the long-term impact of the measure. Malaby continued to cite historical evidence of capital gains reductions at various times on the federal level, which he stated resulted in on average three years of increased activity. When questioned about the impact beyond three years Malaby said “I’m not sure, then maybe someone will be up here with another bill raising it.”
After the questioning, no members of the public testified in support or opposition to the legislation. A committee work session will be scheduled for a later date.