Corporate welfare state

A little change in the tax law with big consequences
By LANCE TAPLEY  |  February 20, 2008
INSIDEfeat_taxes_deletion

"Tax break heaven: The rich get richer, the middle class picks up the tab, and the state goes broke. Here’s why." By Lance Tapley.

"A “good” tax break in the making: Historic rehab." By Lance Tapley.
In 2006, state lawmakers voted overwhelmingly to give away millions of tax dollars a year for decades to some of Maine’s biggest corporations — particularly, to the paper companies. They accomplished this by deleting 33 words from the tax law, thus erasing the expiration date of a tax break created 11 years before. Let’s call this change in the law the “Payments Forever” tax break.

The Payments Forever giveaway was so under-the-radar that state Representative Hannah Pingree, who has since become the Democratic House majority leader, says she didn’t know anything about it — although she voted for it. Christopher St. John, head of the liberal Maine Center for Economic Policy and a tax expert, says he, too, knew nothing about it.

The new tax break was buried within the complex repeal of the state business-equipment tax, which itself was a big gift to the corporations and a priority for Democratic Governor John Baldacci. In the public State House discussion and the news stories on the repeal, the Payments Forever tax break was barely mentioned — and its financial implications were ignored. But it was the real reason behind the repeal, tax-break opponents say.

The ramrodding effort was quite visible. John Williams, president of the Maine Pulp & Paper Association — the paper mills’ lobbying group — made an unsubtle threat in his testimony to the Taxation Committee at the hearing on the repeal bill. Noting that Georgia-Pacific was closing its Old Town paper mill that day (March 16, 2006), throwing 400 people out of work, he said GP’s “investors in Atlanta . . . put their money where it could get the highest rate of return.” The suggestion was clear: Give us what we want or more jobs will disappear.

A month later, during the brief House debate on the repeal, one of the vastly outnumbered opponents, Representative William Smith (D-Van Buren), who was aware of the new tax break that had been fashioned, asked, “Do you think subsidies would have kept the shoe industry in Maine? Do you think that subsidies would have kept the canneries? Do you think that subsidies would have kept the woolen mills?”

All these once-thriving Maine industries are, of course, nearly dead. Smith’s plea was disregarded. The vote to pass the bill was 34 to 0 in the Senate and 123 to 18 in the House.

Subsidies forever
The business-equipment tax, a “personal property” tax, goes back centuries. Businesses not only pay local property taxes on their land and buildings, but also on the equipment and machinery inside those buildings. In 1995, the Maine Legislature, under pressure from the business lobby, commanded state government to reimburse companies for every penny they paid towns and cities under this tax — through an arrangement called the Business Equipment Tax Reimbursement Program or BETR.

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