Once again, a number of recent reports have argued that Maine has a highly unfavorable business climate, characterized by high taxes and excessive regulation. These reports insist that Maine must improve its business climate through an overhaul of the tax system, elimination of property taxes on business equipment purchases, reducing the state’s regulatory burden, and reducing Maine’s supposed high “tax burden.” Although the support for these proposals is framed as being “irrefutable,” in reality many of the analyses are based on questionable data and methodologies.

Business climate studies emphasize a narrow range of economic indicators, such as local and state tax burdens, the availability of tax breaks and incentives for business, the extent of government regulation, and the costs of workers’ compensation. Anything which is seen as a cost for business is “bad” hence “bad” for the overall well-being of the state and its people. However, these analyses are simplistic and misleading because they leave out many other important variables related to economic development. These problems should be approached with caution. As one analyst concludes, writing in the “New England Economic Review,” “states appear to overestimate the degree to which taxes affect economic outcomes and hence are not very receptive to the finding that taxes have little effect.” And, as the Corporation for Enterprise Development points out, “much of what is done in the name of business fails to help either a community’s business or its residents.”

Business climate studies claiming that Maine’s tax burdens and corporate taxes are threatening the state’s economic future are based on doubtful data and methodologies. For example, the recent study by the Institute for a Strong Maine Economy argues forcefully that Maine’s very high tax burden will continue to be a major obstacle for the state’s long-term economic well-being, unless there are major reforms in Maine’s tax structure. The data cited looks quite alarming, supposedly showing that Maine has the highest tax burden in the country.

However, one source of the tax data for the above-mentioned study is the Tax Foundation, whose methodologies have been dismissed as seriously flawed, even in the opinion of Federal Reserve Chairman Alan Greenspan. While Tax Foundation figures are being presented as irrefutable, other critics such as the Center on Budget and Policy Priorities point out that the methodology used by the Tax Foundation is very misleading. One of the largest problems cited by the center, for example, is that their tax burden figures are actually based on the taxes of high income households, but the numbers are presented as though they represent average or typical households.

Maine’s corporate taxes have decreased slightly in recent years as a proportion of total state revenues in Maine’s State General Fund, while the share from individual income taxes has increased. Corporate taxes, as a percentage of the state’s General Fund, have dropped from six percent for FY 1998/99 to 4.6 percent for FY 2002/03. For the same period, individual income tax rose from 44 percent to the Fund to 50 percent.

In addition, other recent tax figures do not support the idea of high tax burdens in Maine, or of inordinately high corporate taxes compared to other states. For example, U.S. Census Bureau tax data, as reported by the Public Policy Institute of New York State Inc., shows that in 2000, Maine ranked 18th among the 50 states in corporate income taxes per capita, lower than all other New England states except Vermont and Rhode Island, and only $3 above the national average. Per capita corporate net income taxes for Maine, at $118 for 2000, dropped sharply to $75 for 2001, according to the U.S. Census Bureau. And, despite the hysteria in these business climate reports about Maine’s supposed number one ranking tax burden, Maine has actually ranked consistently lower than most other New England state, and certainly not in the top 10. The U.S. Census Bureau shows that Maine’s national ranking in total taxes per capita fell from 13th in 1999 to 17th in 2001. This picture differs quite dramatically from the dire situation offered by recent studies calling for lower taxes.

These figures suggest, in other words, that there are some serious problems with the numbers offered in recent business climate reports. In addition, some recent date, from Economic Information Systems, show that there are some encouraging signs in Maine’s economy. For example, Maine’s real personal income growth (4.1 percent) and real per capita income growth (” a remarkable 3.3 percent”) in 2001 were significantly higher than either the New England average or U.S. average figures. Also, according to this source, Maine’s employment growth ranked number one in the nation in 2001 (1.2 percent, compared to .9 percent for the United States as a whole).

At its core, the business climate perspective has two siren calls, which are described as urgently necessary to help the state as a whole: lower corporate taxes and reducing “excessive” state regulation. Are these really for everyone’s benefit, in the long run?

Corporate taxes as a proportion of Maine’s general fund have been decreasing slightly in recent years. Projected shortfalls in the state budget are already creating major headaches for state policy-makers, and are likely to have negative impacts on the public as programs are cut. This may not be the best time to reduce revenues further by additional cuts in corporate taxes. Recent analyses have also shown that corporate tax expenditures such as the BETR program (the Business Property Tax Reimbursement Program) and other business tax breaks are growing at an astronomical rate, and such expenditures are in effect decreasing state revenues still further. The BETR program alone will have drained $143 million from state resources in the five-year period from FY 1997 through FY 2001.

In addition, data on the BETR program and on other state tax incentives, published by Dr. Delogu, Professor of law at the University of Maine School of Law, show that it is primarily large businesses that are benefiting. Many of the very largest corporations in the state receive double tax breaks on the same investments through BETR and TIF (Tax Increment Financing) tax refunds (a practice known as “double dipping”). Small business owners, on the other hand, are left to struggle for their existence in the context of skyrocketing health insurance costs, which put health insurance virtually out of reach for both owners and employees.

Finally, the fact that the corporate businesses climate premise calls for less regulation raises an interesting question: would most Maine citizens really want to return to the kind of conditions that existed in Maine prior to the development of effective governmental regulations in recent decades? These were the reality before such regulations: polluted rivers and air, no control over the dumping of toxins such as mercury, and dangerous levels of lead in homes. Businesses were free to discriminate against employees or customers, and people had few protections from fraudulent business practices. Workers had significantly less safety precautions on the job before OSHA regulations. It is doubtful that a retreat from such regulations would benefit anyone but a small number of large businesses.

As a state, we place a high value on the clean, safe and livable environment, in both the home and the workplace, as well as in the wild. Maine’s quality of life attracts many people to live in Maine, and it is critical to attracting qualified and skilled workers, as well as entrepreneurs looking to create sustainable businesses. In sum, lower corporate taxes and reduced regulation for businesses will largely benefit only one sector of the state, and not the population as a whole.

The current calls for a more welcoming business climate are a repetition of familiar corporate themes: taxes are too high, we have too many regulations. While tax reform in Maine may indeed be necessary, given the inordinately high level of local property taxes in our current system, the tax burden faced by individuals and households needs to be carefully distinguished from that of corporations.

Many of Maine’s economic problems have their roots in national trends. The political shift since 1981 towards less regulation, reduced corporate taxes, decentralization, and devolution from the federal government to state and local governments is in large part responsible for the fiscal challenges currently faced by states and municipalities nationwide. The simple solutions offered by business climate advocates are not likely to alleviate the complex fiscal problems that Maine will be facing over the next few years. Rather, they will help the few, at the expense of many.

John Hanson is the director of the Bureau of Labor Education at the University of Maine.