When corporations receive lucrative tax incentives and fail to pay their fair share in taxes, they profit from the hard work of Mainers and exploit the resources in our communities while shortchanging our prosperity.
At the national level, data clearly show massive corporate tax avoidance. For example, in 2020, 55 of the largest corporations in the US paid $0 in taxes.1 This represents billions of dollars in lost federal revenue and compromises state resources as well since Maine tax returns are based on many of the federal rules that let corporations avoid taxes.
Unfortunately, due to lack of transparency, we have very little information about how much corporations pay in taxes in Maine. We also know little about business tax incentives and whether corporations and businesses that avoid taxes also benefit from receiving tax incentives which could instead support our schools, roads, and communities. This leaves us with an incomplete picture of economic development efforts in Maine, whether they are working, and how they can be improved.
Information obtained by the Economic Policy Institute (EPI) from seven states reveals more than 60 percent of corporations operating there pay no state income tax. Some of these no-tax paying corporations were highly profitable, yet between 11 percent and 27 percent with over $1 billion in federal taxable income pay nothing or next to nothing in income taxes.2 We don’t know what these figures are in Maine because the data hasn’t been made public — but it should be.
Between 1989 and 2017, the state and local tax rate per dollar of corporate profits has shrunk by between a third to one-half depending on how it’s measured.3 EPI estimates the resulting revenue shortfall is at least $43 billion and possibly as high as $57 billion — resources that could have supported badly needed state investments in areas like health care, housing, and recovery treatment. States lost billions of dollars in revenue as result of these cuts.
The erosion of corporate state income tax revenue isn’t a reflection of declining profits — corporate profits have risen even as corporate tax revenues have declined. State policy decisions in recent decades have lowered taxes for corporations and allowed them to exploit loopholes in our tax code to pay little or nothing in taxes. As corporations have paid less in taxes, fewer dollars have flowed into our communities to provide services and supports and invest in areas like education and infrastructure.
Another recent report from Good Jobs First4 finds Maine’s transparency on business tax incentives ranks among the worst in the nation. Based on a review of five Maine business tax incentives,5 which are estimated to cost Maine taxpayers over $96 million in FY23,6 minimal transparency was found across a number of categories including:
- location, year, and nature of projects
- whether project applications and proposals are publicly available for review
- type of business and parent company of awardees
- subsidy awarded and subsidy disbursed/claimed
- number of projected jobs vs. actual jobs created
- projected wages vs. actual wages
- reporting on projected and actual capital investments
- whether program data is clear and easy to obtain7
Lack of transparency undermines accountability. If information about business tax incentives is kept secret, how can we evaluate whether the programs are accomplishing their goal of creating jobs, promoting innovation, or increasing wages? Or compare the public costs of providing tax incentives with the benefits to our communities and workforce? We also can’t see if companies are holding up their end of the bargain by making the investments promised.
Fixing these problems starts with greater transparency in how much corporations pay in taxes and how much they receive in tax incentives. Corporations have reaped substantial increases in profits during the pandemic, as the cost of everyday expenses has skyrocketed. It’s time to make sure they pay their fair share in Maine. We can start by making information on corporate taxes and business tax incentives public — we deserve to see what corporations are paying in taxes.
Notes:
[1] https://itep.org/55-profitable-corporations-zero-corporate-tax/
[2] https://www.epi.org/press/state-corporate-income-tax-revenues-have-eroded-sharply-in-recent-decades/
[3] https://www.epi.org/publication/reclaiming-corporate-tax-revenues/
[4] https://www.goodjobsfirst.org/sites/default/files/docs/pdf/Financial%20Exposure.pdf
[5] These included: Business Equipment Tax Exemption (BETE), Business Equipment Tax Reimbursement (BETR), Employment Tax Increment Financing, Pine Tree Development Zone, and Shipbuilding Facility Credit.
[6] https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/tax_expenditure_21_0.pdf
[7] https://www.goodjobsfirst.org/sites/default/files/docs/pdf/Financial%20Exposure.pdf
