If the sales tax were applied to services provided by lawyers, accountants, architects, investment advisers, real estate agents, and business consultants, among others, it would tend to target the well-off. To aim at visitors, the lodging and meals sales tax, now 7 percent, could be increased. In Vermont, another tourist state, it’s 9 percent.
Alternative 4: End some big tax breaks for rich, out-of-state corporations
The Phoenix last February published articles based on the state’s first-ever encyclopedia of the annual $3 billion given out in income-tax and sales-tax “breaks,” bureaucratically known as tax expenditures. In addition to the big exemption of most services from sales taxes — as well as the exemption for food — and the exemption of nonprofits from the income tax, the list includes many tax breaks that benefit wealthy people and out-of-state corporations.
Rich people are exempted this fiscal year from $808 million in taxes, and companies from $682 million, according to the Phoenix’s analysis. The most controversial corporate tax break is called BETR, the Business Equipment Tax Reimbursement, a property-tax reimbursement of about $130 million in the current two-year budget. In many instances, the biggest corporations are “reimbursed” millions for taxes they don’t actually pay.
Many tax breaks were created years ago to benefit highly special interests. The “Pratt & Whitney Tax Break,” for example, this year subtracts $1.8 million from the state’s income-tax take. It was created in the 1970s to reward the airplane-engine manufacturer for setting up in North Berwick. Pratt & Whitney is owned by United Technologies, which paid its chairman $70 million in 2003 and in 2007 had profits of $4.2 billion.
Last spring the Legislature directed the Economic and Community Development Department to study the effectiveness (for example, in new-job creation) of corporate tax breaks and other business-assistance programs. The report is due out in March. To help close the budget gap, the Legislature could consider ending some pure-giveaway tax breaks, like BETR.
(For details on this subject, see “Tax Break Heaven,” by Lance Tapley, February 22, 2008. The state’s tax-break encyclopedia is online at http://www.maine.gov/revenue/research.)
What the future brings
Will any of these alternatives be embraced within the corporate-lobbyist-encircled State House? Baldacci and legislators, Democrat or Republican, have consistently demonstrated their belief in trickle-down economics — give the rich and their corporations a lot of money and the benefits of their investments will seep down to everyone. But with Obama’s election, bottom-up economics — make sure we have a prosperous working and middle class, so the benefits of their purchases will flow to everyone — theoretically is now up in Washington.
Yet even when the Temple of Trickle-Down, Wall Street, looks more like the Temple of Doom, whether trickle-down will be dethroned in Augusta is another question.
In his December 16 press conference, Baldacci stuck to his longtime no-new-taxes pledge, and he grimly forecast endless cuts in state spending. But he did say he was open to reconsidering the BETR tax break. The biennial budget, which will be released on January 9, “will look at much broader options in response to declining revenues” than just slashing services, says the governor’s aide David Farmer. Baldacci also promised to make public in January a “bright light” of exciting green-energy proposals.
Maine badly needs a bright light.
Lance Tapley can be reached at email@example.com.