AUGUSTA — A Republican state lawmaker says he wants to get rid of what he calls corporate welfare – dozens of tax breaks targeted to help specific industries.
In return, he wants to use the additional revenue to eliminate Maine’s income tax for all corporations.
Sen. Eric Brakey, R-Auburn, said his bill would eliminate an array of 47 state tax credits or exemptions for corporations in a range of industries and would result in as much as $225 million a year in additional tax revenue for the state budget. Brakey said ending the benefits would give the state the resources it needs to entirely eliminate its corporate income tax.
He said the corporate tax breaks are usually passed under the premise of making Maine a more attractive state for business.
“But I think that what happens, in essence, is the only people who really benefit from these carve-outs are the companies that are big enough to afford the lobbyists to get the carve-outs in the first place, and then the companies who can afford the legal teams to figure out how to use the carve-outs,” Brakey said.
His bill, L.D. 311, is currently in draft form before the Legislature’s Taxation Committee. It would wipe out a host of sales tax exemptions and other state tax credits for businesses, including everything from windjammer tour operators to two of the largest property-tax credit programs for businesses.
But Linda Caprara, a lobbyist for the Maine State Chamber of Commerce, the state’s largest business organization, said Brakey is wrong to call the tax breaks and credits “carve-outs” and “corporate welfare.” Caprara told committee members Monday that many of the different tax breaks were put in the law specifically to prop up business and protect jobs.
“These programs exist for a reason,” Caprara said. She said the Legislature over the past two decades has carefully considered all the tax breaks Brakey would like to now do away with. “If there are programs that target specific industries, there’s a reason for it,” she said.
Rep. Gay Grant, D-Gardiner, highlighted one $2.85 million annual tax credit that is earmarked specifically for a shipyard with at least 6,500 employees. Grant noted there was only one shipyard in Maine with those numbers, and suggested that the tax credit was intended to help protect jobs at Bath Iron Works, although she did not mention the shipyard by name.
“As soon as you start looking at some of the devil in the details and you look at that and you want to talk about jobs … I represent a district (where) there’s a lot of employees covered in that 6,500 and that credit is there because we are promoting jobs,” Grant said. “So we can’t just sort of make a blanket statement.”
EXPECTING WAVE OF OPPOSITION
Others on the committee agreed with Grant, saying they suspected there would be a lot of people to testify against the bill when it comes for a second public hearing in the weeks ahead.
Rep. Matt Pouliot, R-Augusta, said that had the bill been released before Monday, opponents would likely be lined up “out and around the Capitol 10 times.”
Pouliot said he agreed with taking a comprehensive approach to reviewing tax cuts and whether they were working the way they were intended. He asked Brakey to consider instead forming a task force or working group to do a comprehensive review of those programs in question. “I’m concerned if we try to cram it into this legislative session we are not going to do it justice, frankly,” Pouliot said.
He said the business community often reacts in a “knee-jerk” fashion, but if it sees elimination of the corporate income tax as being more to its advantage than what is gained from the tax breaks now in law, Brakey may win allies.
Brakey said he was open to the idea, and also that his bill was largely a starting point. He said he realized the committee and the Legislature may want to keep part, some or none of his proposal as it moves through the public process.
STARTING POINT FOR TAX REFORM
Others on the committee thanked Brakey for the bill, saying it was overdue and needed to attract quality jobs and companies to the state.
Rep. Stephen Stanley, D-Medway, said he’s served 22 years on the Taxation Committee and appreciated a proposal that wasn’t more of the same piecemeal approach to tax reform.
“This has some bite into it. I’m not saying this is what we should be doing, but it gives us a direction we should be going in,” he said. “I think it is a good time that we really start taking a good, hard look at our tax policy. I think we are doing a lot of things that are really not benefiting a lot of people and we could do more. It’s time that this Legislature come forward and do what’s right for the people of Maine. We have to create jobs in this state.”
Among other tax credits and exemptions, the bill would eliminate one that provides a sales tax exemption on the purchase of watercraft in Maine, when the watercraft is moved outside of the state within 30 days of purchase. “This is literally a sales tax exemption for rich people who purchase a yacht in Maine and then take it out of state,” Brakey said.
The bill also would eliminate reimbursements that the state pays cities and towns for property tax exemptions they provide on certain kinds of business equipment.
It’s estimated that the two programs – known as the Business Equipment Tax Exemption, or BETE, and the Business Equipment Tax Reduction, or BETR – will cost the state $36.9 million and $32 million, respectively, in 2017.
Both programs have been targeted for reductions and elimination in previous lawmaking sessions without success, but no previous bills have suggested erasing tax breaks as a means to eliminating the state income tax for all corporations.
Brakey said that beyond being able to eliminate the state’s corporate income tax entirely, the bill also could provide between $50 million and $80 million for lowering the state’s personal income tax rate.
He said the change, if approved, would move Maine from being one of the worst states for business, according to the nonpartisan Tax Foundation, to being tied for first place with states like Texas and Nevada, which have no corporate income tax.
“I think that would be quite a jump, and when we are struggling to compete with other states, both across the country and right here in New England, that could be something that could give us a real competitive advantage,” Brakey said.
‘SOMETHING IN IT FOR EVERYONE’
He said he believes the shift would help both large and small businesses equally.
“Everyone would benefit, whether you are a big guy or a little guy, rather than the current situation where only the big guys benefit,” Brakey said.
He said he hopes Democrats and Republicans will back him.
“We hear a lot from folks on the Democratic side of the aisle that they are opposed to corporate welfare; we hear from folks on the Republican side that they hate taxes. So if we are eliminating corporate welfare to lower taxes, hopefully there’s something in it for everyone,” Brakey said.
He said he has provided a copy of his proposal to Gov. Paul LePage’s office. LePage has long pushed for a reduction and even the elimination of Maine’s personal income tax, as well as a reduction in the state’s corporate tax rate. Peter Steele, LePage’s communications director, declined to comment on Brakey’s bill Monday.
The bill will likely be scheduled for a second public hearing and a work session before the committee in the weeks ahead.
Scott Thistle can be contacted at 791-6330 or at: