Forecaster Forum: Don't confuse budget balancing with 'anti-business'
In a recent column (“The Legislature’s taxing logic”) Tony Payne took the Legislature’s Taxation Committee to task for suggesting that a portion of the structural budget hole might be filled by reducing a present business tax break. Payne then went on to complain that merely making this suggestion “does irreparable harm to Maine’s reputation and our economic future.”
But in his haste to politicize anything he sees or reads, Payne did not present the tax break suggestion in an accurate context.
The Tax Committee, along with other policy committees, was tasked by the Appropriations Committee to respond to those portions of the governor’s proposed budget that concern each committee’s jurisdiction. One of the governor’s cuts the Tax Committee reviewed would have dropped around 13,000 homeowners and renters from the popular “circuit breaker” property tax refund program.
Given the expected pressure on property taxes that is likely to result from other cuts in this budget, the Taxation Committee voted unanimously to report back to Appropriations and object to cutting circuit breaker. The problem then became where to find the several million dollars needed to replace the “savings” booked against the circuit breaker cut. Republicans on the committee suggested that circuit breaker could be saved by laying off state employees. The committee’s Democratic members wanted to look elsewhere for savings.
The Taxation Committee has responsibility for millions of dollars in tax breaks, or “tax expenditures,” each representing some dollar amount of potential revenue lost to the general fund. Each tax break came into being with its own promise of saving jobs, increasing capital investment, creating a “level playing field” or otherwise representing a good investment of state money.
Tax expenditures make up a significant portion of state spending. One such expenditure is a 95 percent sales tax break we give manufacturers on the power they use in production. This exemption was put in law in the late 1980s; among other justifications, it was intended to preserve and increase employment in the manufacturing industry.
Unfortunately, while manufacturing has grown since the 1980s and has increased its percentage of state GDP, employment in that industry has dropped by thousands of jobs over the same period. Efficiency and productivity in manufacturing may have increased, but it has been at the cost of Maine workers. The “production energy” tax break has no doubt added to manufacturing’s bottom line, but it has not achieved entirely its intended legislative purpose.
The production energy tax break costs the general fund $46 million dollars a year. The Tax Committee, by a majority vote, recommended to Appropriations that the production energy tax break be reduced by 10 percent (leaving it 85 percent of the sales tax exempted) and that the $4.6 million in savings be used to help the circuit breaker.
As Payne points out, we also suggested that Appropriations consider raising the annual fees paid by domestic and foreign corporations to register with the State. Our present corporate filing fee of $85 is one of the lowest in the country. Increasing these tax-deductible filing fees to just New England average will raise around $11 million, with very little pain to individual corporations.
The recession has both reduced state revenue and increased demand on state services. Unavoidable reductions in spending should be shared by those depending on the services, and that includes the business community. The two budget suggestions that riled Payne are really instances where the business itself contributes a little to save a property tax relief program that benefits many of its owners and employees. It is a matter of setting budget priorities and sharing the load.
Sen. Joseph Perry and I and our Taxation Committee colleagues did not set off on some vendetta against Maine business when we made our report back to Appropriations. We are trying to equalize the load in a very difficult budget, while not losing sight of an eventual recovery.
State Rep. Thom Watson is a four-term Democratic representative from District 62 in Bath and the House chairman of the Taxation Committee. He can be reached at email@example.com.