May 24, 2018
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Treating tax breaks as investments: Three portfolio management techniques for Maine

John Clarke Russ | BDN
John Clarke Russ | BDN
Rep. Adam Goode, D-Bangor, was co-chair of a task force charged with finding $40 million in tax breaks to eliminate or scale back along with devising a regular evaluation for Maine’s tax breaks.


While the group charged with recommending $40 million in tax breaks to eliminate or scale back fell short of delivering a firm recommendation, the 14-member group deserves praise for a major achievement with the potential for significant long-term benefit.

The task force members took significant steps toward setting up a regular evaluation for the hundreds of exemptions, credits and incentives built into Maine’s tax code.

The Maine Legislature has added dozens of these provisions to the tax code over the years. With each new carve-out, the state forgoes revenue it often has to raise from other taxpayers, and there’s been no mechanism to revisit those so-called tax expenditures to determine whether they’re meeting job creation and economic development goals.

As a result, the state has likely been investing in ineffective and unneeded programs and missing other investment opportunities that could bear fruit. Maine’s taxpayers have also been kept in the dark since only limited information is available about the tax breaks and whether they’re yielding a return on the taxpayers’ investment.

Just as policymakers closely scrutinize direct spending through the state budget, they should be equally concerned about examining the hundreds of millions of dollars of spending through tax expenditures.

That’s why we’re encouraged to see the outlines of a regular evaluation program come out of the tax expenditure task force’s work. Regular evaluation is a demanding job that’s rarely done in any state, but it’s critical work.

Under the task force’s working proposal, which the Legislature will likely consider this winter, the state’s tax expenditures — everything from the sales tax exemption on boats bought by nonresidents to the state’s property tax reimbursement for business equipment — would be subject to regular review. The Legislature’s Office of Program Evaluation and Government Accountability would determine the metrics by which the success of various tax breaks should be measured, collect the necessary data, judge their success and, if needed, recommend changes.

It will be crucial that policymakers act on that information by ending ineffective programs, redesigning programs that could become effective, and continuing — even expanding — the programs that are producing a return on investment and have the potential for an even greater economic impact.

As lawmakers weigh what the state’s tax break evaluation will look like, they should consider these components as part of a responsible, investment-oriented approach to managing tax expenditures:

— Sunset clauses for all existing tax incentives and any new incentives. Sunset clauses would force legislators to decide periodically whether particular tax incentive programs are worth continuing beyond their legal expiration dates. If the sunset dates coincided with the regular evaluation of the state’s tax expenditures, policymakers would have the information they need to make prudent decisions that don’t rely on anecdotes.

— A defined purpose — job creation in a particular industry, for example — to accompany each existing tax expenditure and proposals for any new ones. Policymakers can later judge whether the tax break is serving its purpose.

— A regular funding source for evaluating tax expenditures’ effectiveness. Regular tax expenditure evaluations, while important, aren’t cheap. Without a dedicated funding source — say, reserving a small percentage of the tax break received by the beneficiaries of a particular incentive — the tax expenditure evaluation is an easy expense to eliminate during a tight budget year.

Maine needs to manage its tax exemptions, credits and incentives as it would manage a portfolio of investments. We’re encouraged lawmakers are starting to take that approach. It’s long past time the state examined its portfolio with an eye toward performance.

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