Once again, an investigation by the Maine State Legislature’s watchdog agency has found a lack of oversight and accountability for a business tax break.
The Office of Program Evaluation and Government Accountability (OPEGA) recently released its review of Maine’s Research Expense Tax Credit,1 also known as the R&D credit. The R&D credit is an income tax credit for qualified R&D expenditures in Maine which costs Maine taxpayers an estimated $2.2 million per year.2
After receiving the new report scrutinizing the R&D program, the Legislature’s Taxation Committee put the brakes on a new bill that would have doubled the credit’s size.3
According to OPEGA, “While research generally supports the idea that growing innovation does produce economic impacts, the actual impacts of Maine’s R&D credit on the state economy are unknown because of a lack of readily available data. In regard to R&D generally, Maine has performed poorly over time compared to other states even with the R&D credit in place since 1995.”4
Among the report’s other findings:
- no goals, intended beneficiaries, or outcome measures are specified for the credit
- no data is readily available on jobs or investment dollars associated with the credit
- research shows other factors may be more important for attracting R&D to Maine5
The Maine Development Foundation has flagged research and development in Maine as an area of concern, while the National Science Foundation has identified Maine as ranking among the lowest states in many measures of R&D performance.6 Proposed solutions, including in Maine’s 10-year economic development plan, typically focus on public subsidies and tax incentives that seek to influence business behavior.7 But these giveaways won’t attract R&D to our state without broader investments in areas like higher education, workforce development, and broadband infrastructure. Relying on increasing state subsidies to stimulate R&D misses the mark in terms of what state government can truly do to help support and leverage greater R&D in the state.
Legislators will undoubtedly seek to expand this credit again in the future. But programs like this siphon money away from other pressing needs in our communities like roads, education, and health care. Maine already has a host of other programs to support R&D.8 Before expanding this one, legislators who truly want to support innovation in Maine should be able to show taxpayers that the business incentives they’re asked to fund are working.
Notes:
[1] Office of Program Evaluation and Government Accountability. “Evaluation of the Research Expense Tax Credit (R&D Credit)” https://legislature.maine.gov/doc/8379
[2] Maine Revenue Services, Maine State Tax Expenditure Report 2022-2023, https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/tax_expenditure_21_0.pdf
[3] LD 308, An Act To Promote Research and Development in the State by Increasing and Marketing the Research Expense Tax Credit, https://legislature.maine.gov/LawMakerWeb/summary.asp?ID=280078495
[4] OPEGA report to the Government Oversight Committee, March 11, 2022. https://legislature.maine.gov/doc/8380
[5] OPEGA noted that factors linked to strong state R&D performance include: academic, industry, and federal government R&D funding in states; National Science Foundation activity; measures of venture capital as well as patents, business formation, and initial public offerings; human capital in sciences with adequate skills and training; broadband infrastructure; and availability of researchers and university collaborative research settings. See p.15.
[6] Office of Program Evaluation and Government Accountability. “Evaluation of the Research Expense Tax Credit (R&D Credit)” https://legislature.maine.gov/doc/8379 p. 15-16
[7] Maine Department of Economic and Community Development, Maine Economic Development Strategy 2020-2029, https://www.maine.gov/decd/sites/maine.gov.decd/files/inline-files/DECD_120919_sm.pdf p.29
[8] Ibid, p.7
