Testimony at Hearing on L.R. 2721 An Act Related to the Tax Expenditure Review Task Force

We are here today because we have a broken revenue system. Inflation-adjusted General Fund revenue during this two-year budget period is forecast to be no higher than it was more than fifteen years ago and insufficient to meet our minimum obligations. Meanwhile, effective tax rates are higher for low-income Mainers than they are for high-income Mainers and special carve-outs in the tax code favor some groups of businesses and individuals over others. LR 2721 is a stopgap measure to reduce some of the resulting cost shifts to low- and middle-income property taxpayers.  

Parts A and B make significant and long-overdue changes to a small portion of Maine’s system of corporate subsidies and tax breaks. When the legislature created the BETR program, the intent was to incentivize ongoing investments in business equipment by limiting the tax break on any given piece of equipment to 12 years. Part A would re-establish that time limit, incentivize new investments in business equipment, and better steward public resources. By eliminating business equipment tax reimbursements (BETR) for retail businesses, Part A will also help stop the practice of main street businesses effectively subsidizing competition from out-of-state multinational corporations. However, Parts A and B do not go far enough eliminating unnecessary and costly tax breaks for big retail businesses. We urge you to clarify and narrow the definition of retail businesses to further reduce corporate subsidies and tax breaks for large, multinational retail businesses that would locate in Maine regardless of these tax breaks. 
Part C- effectively a repeal of last-in first-out inventory accounting, is difficult to evaluate due to a lack of information. While this proposal is consistent with international standards and has been promoted at the federal level, it is not clear how much revenue it will raise. Nor is it clear which businesses will be most affected or the implications of such a policy change at the state level. By acting alone, Maine may create a situation that would require certain small businesses to keep two sets of books to adhere to these new standards. That said, being a first mover may put Maine businesses ahead of the curve when this standard is adopted at the federal level. 
We support the portion of Part D that transfers funds from the “Tax Relief Fund for Maine Residents” to the unappropriated general fund surplus. We also hope you will take the opportunity to protect more targeted property tax relief in the future. Statute clearly states that the Tax Relief Fund for Maine Residents should only receive funds from the unappropriated surplus after the “Circuit Breaker” property tax relief program is fully funded. Before that program was eliminated last year, it provided more than $40 million per year in targeted tax relief to Mainers who need it most: low-income families and seniors struggling to pay their property tax bills. It would have provided more than $50 million per year were it not for a 20% cut that was imposed for three straight years to help close past budget gaps. We recommend amending LR 2721 to require that the new property tax fairness credit provide $50 million in targeted tax relief to low- and lower-middle income Mainers before allocating any unappropriated surplus to the Tax Relief Fund for Maine Residents in the future. 
Finally, any transfers from the Budget Stabilization Fund should be a last resort. 
Thank you for your time and service on behalf of Maine people.
Joel Johnson, economist at the Maine Center for Economic Policy, testifying before the Joint Standing Committee on Taxation in favor of LR 2721.