Governor Janet Mills has claimed that conforming Maine’s laws to tax changes passed in the federal One Big Beautiful Bill Act (OBBBA) would “cost the state over $400 million.” A new 2025 Maine law empowered her to proactively comply with federal tax changes this year before the legislature reconvenes in January, but Gov. Mills has refused to do so. Her office released a breakdown of provisions they refuse to adopt, treating the figure as a loss of revenue that Maine cannot afford.
However, her claim depends on an outdated, static model of state finance, and it ignores how tax relief influences behavior, spending, and long-term growth. A closer look shows that Mills’ estimate overstates the cost of compliance while understating the benefits for working Mainers and small businesses.
What the Governor Refused to Enact
The Mills administration’s analysis lists roughly $411.6 million in “foregone revenue” from OBBBA provisions it refuses to implement. Among them:
- R&D expenses: $58.5M (2025 only) or $136M (full conformity)
- Bonus depreciation: $102.8M
- Increased standard deduction: $30.8M
- Senior exemption: $31.3M
- No tax on car loan interest: $9M
- No tax on tips: $9.2M
- No tax on overtime: $27.8M
Mills chose to adopt just a handful of smaller provisions, like disaster-loss deductions, Section 179 expensing, and limited R&D deductions, totaling just $13.5 million. In summary, the governor rejected nearly the entire reform package, which was designed to simplify the tax code, reward work, and attract business investment. In her statement, she completely ignores the fact that these benefits go straight to working-class Mainers, rather than disappearing into the aether.
The Inaccurate Static Model Economy
The administration’s analysis assumes every dollar in tax relief equals a dollar lost to the budget. That approach, known as static scoring, ignores how tax changes alter behavior.
In reality, lowering taxes on overtime, tips, or depreciation can increase reported income, work hours, and investment, all of which expand taxable activity elsewhere in the economy. For example:
Ignoring these ripple effects leads to a distorted picture. Maine’s fiscal office models the economy like a closed system, subtracting tax cuts without accounting for second-order gains in growth, job creation, or migration. This is analytically convenient, but an incomplete view of economics.
Short-Term Horizon, Long-Term Error
The Mills analysis covers only Fiscal Year 2025 through Fiscal Year 2029, a five-year window that fails to account for provisions that would recapture revenue over time.
Take bonus depreciation as an example: businesses deduct more upfront, but that simply shifts the timing of tax payments. The state collects less now but more later as the deductions phase out. A ten-year dynamic model would show a much smaller net loss, and in some cases, a net gain, as business investment compounds. Furthermore, with that kind of evidence available, one might begin to wonder if we should start investing the approximately $1 billion the state is currently sitting on in the form of a rainy day fund back into Maine’s economy.
By shrinking the analysis, the administration exaggerates the apparent cost while ignoring long-run recovery.
Missing Federal and Economic Feedback Loops
The governor’s estimate also ignores multiple revenue loss offsetting effects:
- Federal pass-through gains: Higher GDP and income can increase Maine’s share of federal funding formulas.
- Sales tax growth: Tax relief raises disposable income, which directly expands the taxable sales base.
- Corporate buoyancy: R&D and investment incentives increase long-term profits, recapturing some of the initial write-offs through corporate income taxes.
There is no evidence that these interactions were modeled in the state’s fiscal note, despite their well-documented effects on state revenue elasticity.
Blurring Conformity and Rejection
The presentation of numbers is also rhetorically misleading. Mills’ office lists a “total cost” of over $400 million, suggesting that rejecting those provisions saves the state money.
But these aren’t actual losses; it’s money they could have chosen to let the people of Maine keep, and President Trump gave them that opportunity, but the governor chose to take it anyway. The government of Maine did not “save” money or “create” revenue; instead, it taxed Mainers.
A Selective Approach to Business Incentives
Maine already spends tens of millions annually on narrow, industry-specific tax credits:
- Research expenses: $2.2 million
- Seed capital investment: $8.4 million
- Business equipment reimbursement: $19 million
- New Markets credit: $3.7 million
- Capital investment credit: $5 million
- Food processing and shipbuilding incentives: $4 million combined
If targeted tax incentives for select industries are acceptable, why reject broad-based relief that benefits every business in Maine? Why do legislators have to pick winners and losers for tax reductions for business to be good?
The same contradiction extends to the personal side: the governor’s refusal to raise the standard deduction, exempt overtime, or stop taxing tips directly harms working-class Mainers, the very people most affected by inflation and stagnant wages.
Maine Could Afford OBBBA Compliance
Even under the governor’s own static assumptions, full compliance would cost about $400 million, less than the $600 million inflation-adjusted spending increase between the 2024–25 and 2026–27 biennial budgets.
If the state’s budget had simply held spending constant in real terms, Maine could have easily afforded full OBBBA conformity without raising a single tax or cutting a single program. Affordability is important, but so are policy priorities, which is what this is really about.
Conclusion: A Missed Opportunity for Growth
Governor Mills’ refusal to proactively conform to OBBBA is a missed opportunity for Maine’s economy. By treating tax relief as a pure loss, her administration ignores the reality that economic growth, not government spending, drives Maine’s prosperity. The evidence shows that lower taxes on work, investment, and innovation lead to stronger long-term revenues and a more competitive state economy.
As shown above, Maine’s budget could easily absorb these reforms, but political caution, not fiscal necessity, stands in the way.
Instead of clinging to a static model that punishes work and investment, Maine should embrace the dynamism of its people and businesses. OBBBA conformity would make the state more attractive to workers, entrepreneurs, and investors alike, exactly the kind of growth Maine needs to secure its fiscal future.
