This legislative session, lawmakers face a critical choice for Maine’s future: invest in the things that help our communities thrive and all of us prosper, or hand yet another series of tax breaks to profitable businesses.
Federal tax law passed in December radically changed business tax laws, with corporations and special interests successfully inserting special rates, deductions and other breaks into the tax code. The new tax rules benefit their bottom lines, but it also permanently shifts the cost of public services off profitable businesses and their wealthy investors and onto families and communities. Health care, education and infrastructure cost money, and new tax cuts for businesses mean communities will have to pick up the tab.
As I’ve previously written, the tax bill created a $1.5 trillion hole in the federal budget over the next ten years, and now President Trump has proposed cuts to education at all levels, elimination of heating assistance for seniors and families, cuts to health care for and cuts to food assistance programs that help vulnerable Maine families put food on the table.
These federal cuts mean that states, including Maine, will see reduced federal funding for essential programs that help strengthen families and communities. States will be left holding the bill, or forced to shut the door on struggling families who need help getting back on their feet.
Maine must protect public resources for our future
Maine needs to preserve public resources now to maintain the strongest position to ward off cuts to services for families. We also need resources to invest in the foundations of a strong economy – education, health care, and infrastructure – that families and businesses alike value. But to protect public resources, lawmakers will have to reject five business tax breaks that the legislature will debate this session.
The federal tax changes have forced states across the country to decide whether to adapt their own tax codes to mirror the federal code. In Maine, many of these changes relate to business taxes, where following the lead of Washington would compromise state resources to pay for additional state-level tax breaks to businesses that are already getting huge tax breaks at the federal level.
According to the Institute on Taxation and Economic Policy’s analysis of the tax bill’s impacts by state, Maine businesses will reap $488 million in federal tax breaks next year, with those benefits accruing to corporations and pass-through entities (businesses such as partnerships and LLCs that file taxes on their owners’ personal tax forms). The value of these tax breaks and are heavily tilted toward the wealthiest households in Maine.
The top 1% of Mainers — those making more than $506,000 — are expected to receive an average tax cut of $11,730 in corporate tax breaks because these are the households that own the most corporate stock. The tax changes for pass-throughs deliver an average tax break of $12,230 for these households.
Tax breaks in play in the Legislature this year
Corporate AMT— It’s possible for profitable corporations to rack up so many write-offs through loopholes in the tax code that, on paper, they appear to have no taxable income. By doing so, they could escape paying any income tax at all. That’s where the Corporate Alternative Minimum Tax, or “AMT,” comes in. The AMT ensures that profitable businesses pay a “minimum” income tax. The federal tax law repealed the federal corporate AMT, allowing those businesses that game the system to escape paying their taxes. Maine has its own AMT, and lawmakers will have to decide whether to follow the federal government’s lead and repeal it – a move that would cost Maine $1.5 million this biennium.
Accelerated Depreciation — Business assets such as vehicles, equipment or software contribute to the total value of the business, but lose value, or “depreciate,” over time. The tax code accounts for depreciation in calculating a businesses’ tax obligation. Accelerated depreciation programs allow businesses to write off the value of their assets before they depreciate – essentially allowing the business to pretend they’re less valuable than they are to avoid paying their taxes. The federal tax bill significantly expanded the bonus depreciation and section 179 programs that allow businesses to write off their investments faster to lower their tax bills. Maine is the only New England state to allow for accelerated depreciation and would lose roughly $35 million this biennium if it followed the federal rules for these programs.
Maine lawmakers are also debating whether to extend two state-level business tax breaks that are schedule to expire. These programs would give more tax breaks on top of the massive tax breaks businesses are already receiving from the federal tax law.
Pine Tree Development Zones —The Legislature is considering extending the Pine Tree Development Zone program for another five years. The Legislature’s nonpartisan watchdog organization investigated the program and determined it is not designed to meet its stated goal of creating quality jobs in distressed areas. Last year Pine Tree Zones drained $12 million of public resources.
Shipbuilding Credit — This state income tax credit delivered $60 million in public resources to a single company, Bath Iron Works, over the course of 20 years. The Legislature is considering whether Bath Iron Works should be offered another $60 million in tax credits over the next two decades. Bath Iron Works is owned by General Dynamics, a company estimated to receive nearly $200 million in tax breaks from the federal tax plan annually.[i]
Profitable businesses don’t need another tax break
Simply put, these business tax breaks funnel valuable public resources away from investments that benefit the entire public and toward a handful of corporate and pass-through entities and their shareholders.
This is a critical juncture for Maine’s future. Lawmakers can seize this moment and protect available resources necessary to make needed short- and long-term investments that truly grow our economy and promote shared, sustained prosperity. Or, they can squander these resources by doubling down on business tax breaks that benefit a relatively small and already prosperous group of people.
[i] A January earnings call revealed that General Dynamics anticipates the Trump tax cuts to increase their profits by 6.7% of earnings, or $194 million annually.
General Dynamics, 2017 Q4 Earnings Call Transcript and Press Release: https://seekingalpha.com/article/4139857-general-dynamics-gd-ceo-phebe-novakovic-q4-2017-results-earnings-call-transcript
