Let me start off by saying that I’m not writing to defend former Gov. Angus King. His campaign has people who are paid to do that. I’m writing to defend a tax incentive that has been vital to Maine businesses and their employees. The Maine Center for Public Interest Reporting recently took issue with the very popular Business Equipment Tax Reimbursement Program (BETR). BETR, which has been on the books in Maine since 1995, remains one of the bright spots in Maine’s tax code.
One theory of tax policy argues that we should tax what we do not want and reward those things that we want to encourage with no or low taxes. You see this with Maine’s various “sin taxes,” where we impose large taxes on things that we want to discourage, such as smoking. The other side of this coin is that we should not tax those things we want to encourage, and that is exactly what BETR does.
When BETR was created, we as a state decided we wanted to encourage businesses to invest money in equipment and machinery, and that the encouragement would be through the elimination of an antiquated property tax on business machinery and equipment. Encouraging investment in Maine was and remains sound policy.
Those involved in economic development are always looking to grow manufacturing jobs because these are good jobs that generate high rates of pay for employees. Manufacturing, however, requires heavy investment in equipment and machinery, particularly if the manufacturer and its employees wish to remain competitive in the global economy. BETR simply recognizes that we want manufacturers to invest in and manufacture in Maine.
Not only does BETR encourage behavior that we like to see, but it also levels the playing field by eliminating an antiquated tax. At the time BETR was created, many states did not tax business equipment or machinery or taxed this personal property at very low levels (the number of states forgoing this revenue has only since increased). For example, at that time, New Hampshire, Massachusetts, Rhode Island, New Jersey, Pennsylvania, New York and Delaware exempted most manufacturing equipment from personal property taxes. Before BETR was enacted, Maine was discouraging investment while competitor states were encouraging this very same behavior. We were being left behind.
Not surprisingly, several tax studies commissioned by the Maine Legislature strongly supported the elimination of taxes on business equipment and machinery because it is both bad tax and bad economic policy. Simply put, it makes no sense to discourage investment in productive capacity by taxing it. BETR is more accurately described as the elimination of an antiquated disincentive than an incentive.
The design of BETR further reinforces the concept of rewarding behavior we want to encourage. The Maine Center for Public Interest Reporting wrote about the “cost” of BETR. It is important to note, however, that BETR does not cost a thing in terms of forgone revenues if businesses are not putting new equipment and machinery into production. Businesses must actively invest in Maine before they are ever entitled to the benefits of BETR. There is no reward without there first being the positive behavior we seek to bring about.
In any event, one aspect of modern manufacturing that has become painfully clear is that manufacturers and their jobs have become increasingly mobile. They can decide to relocate their operations and related jobs to jurisdictions that provide the best benefits or, in the case of companies that own multiple facilities in various jurisdictions, they can simply decide to allocate their scarce investment dollars elsewhere.
Make no mistake, in today’s world, companies that do not invest in current technology cannot compete. Moreover, if companies do not provide their workers with current technology, those workers simply cannot compete with workers elsewhere who have do have current technology. Investment in modern equipment is an investment in the long-term future of our workers.
It is clear that by taxing investments in new equipment and machinery, Maine’s tax code will drive away investment in manufacturing, sending these quality jobs elsewhere. This was true in 1995 and remains true to this day. That is why it is so important that we preserve BETR.
The article misses the mark by trying to evaluate BETR as a “jobs program.” BETR was never intended to create jobs, but, rather, to level the playing field among states and to encourage much-needed investment here in Maine. While jobs have certainly been an ancillary benefit, evaluating the program simply as it relates to jobs fails to understand the policy behind BETR.
Dana Connors is president of the Maine State Chamber of Commerce.