Closing the door on ineffective tax loopholes in Maine: Important challenges lay ahead

Maine offers 192 different tax loopholes for individuals and corporations. These tax breaks are a form of backdoor spending that cost the state almost $2.2 billion in lost state revenue in 2015. This is revenue the state could potentially use for education, healthcare, and infrastructure or to make Maine state taxes fairer by lowering taxes for struggling low- and middle-income families.

Not all tax loopholes are created equal. Some boost income and improve living standards for working families. Others encourage businesses to invest in new equipment and facilities upgrades. At issue is whether or not these tax breaks work as intended and at what cost to the state.

In 2015, the Office of Program Evaluation and Government Accountability (OPEGA) began a process of reviewing existing tax breaks in Maine. The legislature’s Government Oversight Committee which oversees OPEGA met last month for an update. Between now and 2021 OPEGA will conduct an in depth analysis of 31 tax breaks including an assessment of past and future fiscal impacts and an evaluation of whether each tax break accomplishes its intended purpose. Programs slated for review include the New Markets Capital Investment Credit, Pine Tree Development Zone Tax Credit, and Employment Tax Increment Financing, which together the state projects costs about $25.3 million in lost state revenue this year. To put that number in perspective, in 2014 Maine spent $30 million to fund the state’s Early Intervention and Early Childhood Development Programs.

OPEGA’s reviews are a needed first step in making sure that Maine effectively uses limited resources. If OPEGA adheres to its current schedule, it will complete the first round of in-depth reviews by the end of this year. That means lawmakers will have a chance to act on the initial findings related to a few key programs when the 128th Maine Legislature convenes next year.

Still OPEGA faces a number of hurdles in conducting its work. The absence of reliable data to measure program performance is a longstanding issue that has been noted in previous analysis of programs intended to spur economic development in Maine. Despite such challenges, OPEGA’s work will raise important questions about existing programs and reinforce the need for greater transparency and accountability in the future. Thus ultimately reaching the final obstacle: whether or not lawmakers have the political will to take action. Only time will tell.