January 6, 2012

DENIS THOET: Do businesses use their tax breaks to create, save jobs in Maine?

Denis Thoet

The good news is that we're No. 1, according to Ernst and Young, accountants. Maine has the lowest effective tax rate on new capital investment.

The bad news, of course, is that for the last two years Forbes Magazine has ranked Maine dead last in the nation for its business climate.

The really, really bad news is that the $2 billion-plus we give away in tax breaks to businesses in Maine has not improved our business climate and has not created jobs. We have given away the store with little or nothing to show for it. And we lost 4,500 net jobs in 2010.

So while we are trying to squeeze $220 million out of somewhere to cover the deficit in the human services budget, we are casting a blind eye to a vast sea of revenue that has disappeared into Maine's corporate pockets, without many known positive effects..

If we truly are going to run Maine government like a business, as Gov. Paul LePage intends to, the first principal is get rid of nonperforming programs and subsidies. Even if we squeezed out only a half-billion dollars in unnecessary tax breaks, we might be able to afford basic health care for our poor and elderly.

According to the latest Maine State Tax Expenditure report, prepared every two years by the Bureau of Taxation, Maine did not collect $1.2 billion in income-related taxes because of "special exclusions, exemptions, credits, preferential rates or deferrals of tax liability." Nor did the state collect $1.9 billion in sales tax revenue for the same reasons.

While a chunk of this uncollected revenue went back into the pockets of homeowners (mortgage interest and property tax exemptions), the bulk of these lost revenues went to private corporations in the form of business equipment tax exemptions, favorable income tax rates to out-of-state businesses, and tax increment financing (TIF) breaks.

No serious study of the effectiveness of these tax breaks has been done. An article in this newspaper on Dec. 3, headlined "Maine leads in tax credits vs. job creation analysis," listed Maine's "first in the nation analysis" of the effectiveness of its business tax breaks.

The study, made in 2008 by the Maine Office of Innovation, attempted to determine how many of Maine's incentives packages actually created or saved jobs. It reported that those businesses' employment actually fell 1.8 percent that year, compared to a statewide decline of 1.9 percent.

It's been a long time since 2008, given the economic slide we have been in since then. Perhaps it's time to take another look at our business tax breaks.

If we are going to give subsidies and tax breaks, we should give preference to local businesses, especially in our suffering downtowns, because they benefit the communities they are in. We should give preference to alternative energy companies to help them provide low-cost wind and solar alternatives to our high fuel oil and utility costs.

In the interest of full disclosure, Long Meadow Farm's assessed value is reduced by $37,000 each year because of the homestead deduction, veteran's deduction, and Open Space and Farmland deduction.

That amounts to about $400 a year in reduced property taxes, or about enough to pay an apprentice for eight weeks. And yes, I do take my deduction for mortgage interest and property taxes.

Over the last nine years, we have employed between two and four apprentices, mostly people in their 20s who want to pursue a future in farming. They have little equity and many are saddled with college debt. Their chances of acquiring land and equipment are minimal. Yet our food production is becoming more and more local, so we need to find ways to put the next generation to work producing it.

If we do a better job studying our skewed tax system, we may find that the "job creators" are not creating jobs, and corporate tax breaks can be minimized so that all Maine's citizens can benefit from lower taxes and greater government services.

We need to know which tax breaks are effective and which are not. We also need to know which businesses actually need these breaks and which do not.

Much like a person seeking welfare, we need to look into the corporate balance sheets to learn if the tax breaks will create jobs or just buff up the bottom line.

Corporations are people too, we are told, so we need to begin to scrutinize them just like we do anyone else who wants a handout.

Denis Thoet owns and manages Long Meadow Farm in West Gardiner. www.longmeadowfarmmaine.com.

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