Tax break heaven

By LANCE TAPLEY  |  February 20, 2008

Last year, Democratic legislators wanted to expand the sales tax to apply to more services, from banking to ski tickets. Bidding for Republican support, they offered to in exchange lower the state income tax for the highest brackets. But Republicans and Democrat Baldacci blocked this legislation because of the business lobby’s disapproval. While this “tax reform” would have ended exemptions for some special interests, and it would have made the sales-tax receipts to the state less erratic (the primary motivation behind it), it would have made the tax system less fair in another way, and it would not have raised more money for the state.

To raise money and create fairer taxes, reformers contend, legislators could simply eliminate selected tax breaks.

What follows are two stories of life in Tax Break Heaven. (Maybe that should be on a sign greeting visitors in Kittery.) Our first piece is about a virtually secret tax break enacted in 2006 for paper companies and other big corporations. The second looks at a current effort to create a tax break for companies that rehabilitate old buildings.

In his recent book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill), New York Times investigative reporter David Kay Johnston observes, “It is a universal truth that it is easier to mine gold from the government treasury than the side of a mountain.”

Who benefits?
The Phoenix divided into five categories the expected cost to the state treasury from each tax break in fiscal year 2009.

Who benefits? By how much?
Poor people $157 million
Regular folks $1.7 billion
Rich folks $808 million
Companies $682 million
Other $5 million
Total  $3.4 billion

Source: Maine State Tax Expenditure Report 2008-2009

More big breaks
Here are some other business tax breaks that, if repealed, would help end Maine’s constant fiscal crisis. The numbers are from the Maine Revenue Services report and refer to the cost to the treasury expected in fiscal year 2009 (July 2008-June 2009).

There are monster exemptions to state sales taxes, such as for finance, insurance, and real-estate services, for a cost of $326 million; or professional, scientific, and technical services, for a $106-million cost.

The Bath Iron Works Tax Break, a/k/a the shipbuilding facility credit, is a hit to the income tax of $2.8 million. It was designed in the 1990s for the Midcoast’s largest employer. BIW is owned by Virginia-based General Dynamics, which in 2005 received $10.6 billion in military contracts. Its profit last year was $2 billion.

The Pratt & Whitney Tax Break, a/k/a the jobs and investment tax credit, hits the state income tax for $1.8 million. It was crafted in the late 1970s to bring airplane-engine manufacturer Pratt & Whitney to North Berwick. Other companies now take advantage of it, too. Pratt & Whitney is owned by United Technologies, of Hartford. In 2003, UT paid its chairman $70 million in salary and stock options. Its profit last year was $4.2 billion.

Lance Tapley can be reached at ltapley@roadrunner.com.

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