Gov. Janet Mills is proposing a slate of tax increases and program changes to balance the next two-year budget, something required by the state’s constitution.

The budget proposal reflects a new reality that federal pandemic assistance has largely worked its way through the economy, causing state revenues to flatten. And new programs and initiatives enacted by Democrats, who control both legislative chambers and the governor’s office, require more funding to maintain as labor and other costs increase.

Some of the proposals would increase taxes on individuals. Others would be used to leverage federal Medicaid funds and would not be felt by Maine taxpayers, according to state officials.

Here’s a breakdown of the proposed tax and fee increases.

PENSION INCOME

A tax break approved in 2022 increased the amount of pension income that is exempt from taxes from $10,000 in 2022 to $45,864 last year.

Mills’ proposal would preserve the tax break for most people receiving pension benefits, but it would reduce or eliminate the tax break for those with pension income of $100,000 a year or more. As a result, a total of about 22,160 retirees would pay higher taxes, according to the governor’s budget office.

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An individual with a taxable pension income of more than $200,000, or a couple filing jointly with a taxable pension income of up to $300,000, would no longer be able to deduct any of their pension benefits from income taxes.

Individuals making between $100,000 and $200,000, as well as couples earning between $200,000 and $300,000, would see a reduced tax benefit.

According to state projections, individuals earning between $100,000 and $150,000 in taxable pension income would see an average increase of $320 a year in taxes, while those earning $150,000 to $200,000 would see an average increase of $1,241. Those with more than $200,000 in income would see an average increase of $1,484. For joint filers, those increases would be $423, $1,520 and $1,900, respectively.

STREAMING SERVICES

Streaming services would be subject to the state sales tax of 5.5% under the Mill’s proposal.

The idea was first proposed by Gov. Paul LePage in 2017 and was pitched by Mills in 2020 and 2024. It has been rejected all three times.

State officials say the proposal will create fairness in the sales tax as streaming services become more popular and ubiquitous.

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Currently, music and movies that are purchased and downloaded from a website are subject to sales tax, but that same music and those same movies are not taxed when streamed online.

If approved, the sales tax would be added to the monthly subscription for movie, television and audio streaming services, including Netflix, Hulu, Disney Plus, Spotify and Pandora. It would also apply to videoconferencing services, such as Zoom. That would add about $1.10 for a $20 subscription.

It’s expected the proposal would generate about $10 million in additional sales taxes.

CANNABIS TAX INCREASE

Mills is also proposing a 40% increase in the sales tax rate for adult use cannabis.

The tax rate on sales would rise from 10% to 14%. The change is expected to generate nearly $4.2 million in fiscal 2026 and nearly $11.5 million in fiscal 2027.

CIGARETTE TAX INCREASE

Maine’s cigarette tax would increase from $2 a pack to $3 a pack, generating an estimated $80 million over the next two years.

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The proposal was welcomed by public health advocates but quickly drew criticism from smokers and retailers.

Maine has not increased its cigarette excise tax since 2005, when it went from $1 per pack to $2.

The increase would put Maine’s cigarette tax more than $1 above the average state tax of $1.96 per pack.

Maine would continue to have one of the lowest taxes in New England. Massachusetts, Vermont, Connecticut and Rhode Island all have cigarette taxes of more than $3 per pack.

However, New Hampshire’s state tax is $1.78, and some retailers fear Mainers will simply buy more of their cigarettes across the state border to avoid the higher tax.

AMBULANCE TAX

The budget proposal also includes a new 6% tax on private ambulance services. But state officials say the revenue from the tax would be used to unlock additional federal Medicaid money that could be used to support those same services.

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The proposed tax would be applied to the net income of private ambulance services and would generate an estimated $3.6 million a year. It would not apply to municipal ambulance services.

The state budget office, the Department of Financial and Administrative Services, said the revenue raised by the fee would be used to increase MaineCare reimbursements for those services, and those reimbursements would be matched with federal Medicaid funds.

The Maine Ambulance Association previously recommended and supported the concept as a way to raise MaineCare reimbursements, but is raising concerns about the plan as drafted. It says the tax would be assessed on only 40 private ambulance companies and questioned whether all ambulance providers would receive the higher reimbursements, including municipal providers. It also expressed concern that a portion of the new revenue would be used to address other shortfalls in the MaineCare budget.

“The MAA originally proposed this program with the goal of providing critical financial support to ambulance providers, but the current version of the plan raises concerns,” Executive Director Butch Russell said in a written statement. “We urge lawmakers to ensure all funds are directed back to ambulance providers to fulfill the program’s original purpose.”

PHARMACY ASSESSMENT

Mills is also proposing a 70-cent fee on prescriptions. Like the ambulance tax, it’s designed to unlock additional federal money to fund reimbursements to providers.

State officials say the cost of the new fee would not be shouldered by customers because the pharmacies would ultimately receive larger reimbursements to cover the fee. Meanwhile, the state will receive more federal matching funds.

According to the state budget office, the new assessment would create a new revenue stream of $9.1 million in fiscal 2027. The state would appropriate $2.3 million for provider reimbursements to cover the pharmacies’ costs, unlocking about $6 million in federal funding. As a result, the state says, the program would bring in new federal revenue to take pressure off the state budget without costing the pharmacies or the customers, it says.

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