The BDN Opinion section operates independently and does not set news policies or contribute to reporting or editing articles elsewhere in the newspaper or on bangordailynews.com
Tabitha Swanson is a principal at The Swanson Group, Maine’s largest female owned full-service accountancy firm located in Westbrook.
Tax policy is one of the most direct ways a president can influence the economy and with the shift in power this month, significant tax changes are anticipated. While I do not have a crystal ball, history can inform many predictions. Our tax professionals looked back on historic trends, campaign promises, and previous political shifts. What comes next is our best expectation as to what Mainers can expect for tax policies changes in 2025.
Looking back over the last three decades, comparing Republican administrations to Democratic administrations, trends do emerge. Republican administrations typically advocate for tax cuts to stimulate the economy, with a focus on reducing corporate tax rates. Republican policies often focus on deregulation, which can free up capital for businesses to grow when coupled with reduced taxes. Democratic administrations tend to advocate for higher taxes on corporations and higher-income earners to fund social programs and reduce income inequality. Democratic administrations also typically increase government spending on programs such as healthcare, public services and welfare, which serve a critical need, but are costly.
Looking back at four decades of historic political shifts in America, when a Republican president follows a Democratic president (exactly what happened this week) we can use informed predictions about the likely changes to come in 2025. We can also use information from what President Donald Trump initiated in his first term following Democratic president Barack Obama in 2017, and what he has said during his recent campaign.
History shows us that when Republican presidents take office after Democratic leaders, taxes are reduced for corporations and high-income individuals. Examples of this can be found in 1981 with Ronald Reagan, and again 2001 with George W. Bush. President Reagan implemented tax cuts that reduced the top individual tax rate from 70 percent to 50 percent and he lowered the corporate tax rate. Bush passed a series of tax cuts that reduced both individual and corporate tax rates following Bill Clinton’s presidency. His administration also made tax cuts for estate and capital gains taxes as well.
When Trump was inaugurated in 2017, he implemented the Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35 percent to 21 percent, lowered individual tax rates, and provided tax incentives for businesses. In his recent campaign, he proposed making individual and estate tax cuts permanent, cutting capital gains taxes, lowering the corporate income tax rate, implementing a baseline tariff on all U.S. imports (and a 60-percent tariff on imports from China) and exempting tip income and Social Security benefits from taxation. Whether these pledges come to fruition remains unknown.
With all of this comes the important question: How will Mainers fare amid the changing tax policies? The possible benefits:
Middle-class Mainers could see continued tax cuts. Maine-based businesses could benefit if corporate taxes are lowered. Cuts to capital gains and estate tax could benefit Mainers with investment income. Tax cuts may stimulate economic growth, increase business investment, and make the U.S. more competitive globally.
The possible negatives:
If federal taxes are lowered, the state of Maine may increase state income tax to make up for lost revenue. Mainers already face some of the highest corporate and property tax burdens in the United States. Any tax increases at the state level will hurt. If corporate taxes are lowered, state government could face cuts to services. Tax cuts may also lead to higher national debt, reduced funding for public services, and worsened income inequality.
Another key issue to watch, particularly in Maine where the tax burden is high, will be whether the SALT cap is repealed. The State and Local Tax (SALT) deduction is set at $10,000, which means regardless of what your income is or how much your property is worth, no Mainer can deduct more than $10,000 in state and local taxes. If the SALT cap is repealed everyone can deduct what they actually pay in property tax and income tax. Of course, the downside would be that tax deductions need to be paid for, potentially with budget cuts, cuts to public services and social programs, or by further increasing the deficit.
Overall, assumed tax policy updates could have a mixed effect on the state of Maine. And while there seem to be both positive and negative outcomes for all income brackets, the SALT cap remains to be a key point.