🔒Capitol Update: Revenue down, tax cuts pledged, tax break report probed

Revenues further in the red

• $4.7M drop in expected income tax
• Sales taxes down $943K

After the first three months of the budget year, state revenues are behind estimates by nearly $27 million, with not a single revenue category meeting expectations in September.

“All three of our top lines and other large lines on the revenue side are down in September,” said Finance Commissioner Sawin Millett in an interview. The top revenue sources are the individual income tax and the sales tax. Other large sources of revenue are the corporate income tax and the tobacco taxes.

The largest source of taxes is the individual income tax, projected to bring in over $1.4 billion this budget year. There was bad news both for the estimated income taxes paid by the self employed and the withholding payments. In September both estimated taxes and withholding payments were below estimates, putting the income tax $4.7 million in the red after three months.

The second largest source of tax revenue is the sales tax, projected to bring in just over $1 billion this budget year. It was slightly below estimates in September, down $943,000. For the three months, it is below estimates by $9.5 million, although Millett said most of that was from a one-time adjustment to meet accounting rules made in August.

He said the corporate income tax is below estimates by $13.2 million after three months. He believes part of that might be due to companies taking advantage of changes in the tax code passed by the Legislature that allow faster deductions for investments in equipment.

Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the appropriations committee, said those tax cuts are just the first of many that will result is less state revenue during the next two-year budget cycle.

“We're estimating a loss of $399 million over the two years,” she said. “This is a very troubling picture.”

Rotundo said with all of the major revenue sources being behind estimates after three months, she is very concerned there might be a trend developing and not just “month to month blips” in state revenue. She said part of the revenue shortfall can be attributed to tax cuts.

Sen. Richard Rosen, R-Bucksport, the co-chairman of the appropriations committee, said he is also concerned about the soft revenues, but there are a few bright spots.

“We see that the restaurant and the lodging tax is up over last year,” he said. “That is an indication that we have had a better tourism season than many expected.”

Millett said he would not speculate on whether the revenue forecasting committee would re-project revenues when it meets next month. He said that depends in part on the economic forecast the Consensus Economic Forecasting Commission develops.

LePage pledges more tax cuts

• Wants elimination of corporate tax
• Tax Foundation says Maine improving

Gov. Paul LePage says the improvement in Maine's business tax climate as measured by the Tax Foundation is only the beginning. He will propose further tax cuts, including the elimination of the corporate income tax, to spur job growth in the state.

“We are moving in the right direction and I am pleased to see it,” he said. “In my mind, it's so far away from where we need to be, it's really symbolic.”

LePage said he wants to be in the “middle of the pack” when it comes to the overall tax burden.

The Tax Foundation's most recent State Business Tax Climate Index moved Maine from 37th in the nation to 30th. But, LePage said, Maine's overall tax burden is ninth highest among the states and that has to be lowered for the state to compete with what he calls the prosperous states.

“I think the state of Maine should have no corporate tax at all and that the United States of America should be around 20%,” he said. “Then we could compete worldwide.”

LePage said it is a global marketplace and Maine needs the federal government to adopt tax policies that encourage growth and that state changes are not enough. He said the Tax Foundation's ranking next year should improve again with the further tax reductions that take effect Jan. 1, 2013.

The index compares states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property.

LePage said he made it clear when he proposed the tax changes after his election that they were only a beginning. He said he is looking at several tax cut proposals as part of the two-year budget he will submit in January, but has not decided which reductions to propose.

More info sought on tax breaks

• Lawmakers find report lacking
• Want link between breaks and jobs

Maine Revenue Services has submitted a report to the Legislature on several of the business tax breaks on the books, but leaders of the Taxation Committee say they want a measure of how effective the breaks are in keeping or adding jobs.

“That's not what we were asked to do,” said Associate Commissioner for Tax Policy Mike Allen. He said Maine Revenue Services was asked to provide data on what the breaks cost, not their effectiveness.

The report covers the Business Property Tax Reimbursement program and tax credits for Jobs and Investment, Research Expense, Seed Capital Investment and Shipbuilders.

“The report has the number of taxpayers that claimed the credit and the dollar amount,” he said. “We are not geared up to do a job analysis beyond the minimum set out in the law, if there is one.”

For example, the Jobs and Investment Tax Credit was used by just one employer, and its identity is protected by law. That business got a credit of $489,986. Under the minimum required to qualify for the credit, the business had to create at least 100 jobs.

Rep. Gary Knight, R-Livermore Falls, co-chairman of the Taxation Committee, is concerned that only one company used the credit and said that the credit should be reviewed as part of a process to evaluate all business tax credits.

“We had started down the road of doing a review of all of the tax credits to see how effective they are,” he said. “That didn't happen, but it should.”

“We spend more in tax expenditures every year than we spend in the entire state budget,” said Rep. Seth Berry, D-Bowdoinham. “Maine has no idea how its corporate tax breaks are being used, who they are going to, are they creating jobs and what benefits do other taxpayers get who are shouldering the burden.”

Both Knight and Berry said the largest of the tax breaks in the MRS report is for the BETR program. The program reimburses some businesses for property taxes paid on qualified property.

“There is no jobs measure for that substantial expenditure,” Knight said. “I know there are concerns about trade secrets and confidential business information, but there must be some way we can get a measure of what this means for jobs in Maine.”

The report lists every business that filed for the program during the budget year ending June 30. Approximately 1,800 companies were reimbursed over $52.7 million.

Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz.