DAVID FARMER

Breaking the myth about Maine’s taxes

Posted April 27, 2011, at 8:37 p.m.

Maine’s tax burden on new business investment is the lowest in the country.

It goes against what the noise machine tells us every day, what Republican politicians told us all through the last campaign, and what many people are just prone to believe.

But credible research says it’s true.

It’s usually easier to believe the bad news than the good. And politicians will take advantage of that, particularly when there’s power to be gained from exploiting people’s natural inclinations to think the worst.

Last year during the gubernatorial campaign, Forbes magazine, which is run by two-time presidential candidate Steve Forbes, produced a spurious ranking claiming that Maine had the worst business climate in the country.

Despite having a methodology that wasn’t fully disclosed and that included such things as average temperature, the listing caught fire.

It became the gospel, especially for Republicans, many of whom still repeat the claim today.

But now, outside of the glare of the campaign season, there’s a new study that says Maine imposes the smallest tax burden on new investments, followed by Oregon. Virginia and New Hampshire — typically among the leaders in studies about taxes and business — rank sixth and seventh, respectively. New Mexico, Washington, D.C., and Rhode Island are at the bottom.

The study was conducted by the Quantitative Economic and Statistics Practice at Ernst & Young LLP, which includes the company’s national tax practice. The work was done in conjunction with the Council On State Taxation, a nonprofit trade association that was formed in 1969 as an advisory committee to the Council of State Chambers of Commerce, but today has about 600 member businesses that conduct interstate and international business.

The three authors include the former director of tax research for Michigan and Minnesota, a senior manager at Ernst & Young, and the former director and chief economist of the U.S. Treasury Department of Tax Analysis.

The authors are attempting to “isolate the impact of state and local business tax systems on new capital investment, the cornerstone of state economic development.”

The study has limitations, which the authors laboriously identify. For example, the report recognizes that the decision on where to locate a business involves factors beyond taxation, anticipated costs and incentives.

The study looks at industries that have a choice of where they can locate: headquarters, research and development, office and call centers, durable manufacturing and nondurable manufacturing.

“Maine’s business tax structure imposes the smallest burden on new investment for the selected industries analyzed,” the study says.

One of the big factors in the calculation is that new business equipment is exempt from property tax and that any local tax paid on qualified equipment is refunded through the Business Equipment Tax Reimbursement Program.

Gov. Paul LePage’s budget proposal seeks to lower taxes in the state by more than $200 million, but it specifically targets BETR for a 10 percent reduction.

Other factors include the way Maine apportions its corporate tax rate and the state’s low sales tax rate.

No study that is trying to measure something as nuanced and complicated as how businesses decide to locate in a particular state is perfect. Even the deeply flawed Forbes ranking should be considered because it’s important to understand how perception and reality can intersect — and conflict.

I hope that the COST study will receive the attention it deserves.

People, I’m afraid, won’t hear about it, and some of those who do, won’t believe it.

But as the Legislature seeks to understand how it can help improve Maine’s economy and attract new businesses, this report adds important context.

If Maine’s tax burden on businesses isn’t the big hurdle that it’s perceived to be, maybe we should turn our attention toward other issues that have a bigger impact on business growth and retention.

And finally, one piece of unsolicited advice: If you’re trying to save a troubled mill, attract a new high-tech company to the former Brunswick Naval Air Station and create jobs in the state, stop talking about the state like it’s a gutter.

Maine has a lot going for it. It’s time our political leaders act like it.

David Farmer is a political and media consultant. He was formerly deputy chief of staff and communications director for Gov. John E. Baldacci and a longtime journalist. You can reach him at dfarmer14@hotmail.com.

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