Stimulus package? Not for Maine businesses

Many of you have received a letter in the mail announcing how much money the federal government will be sending you as part of an “economic stimulus” package. In light of the economic situation we have here in Maine – low job growth, high taxes, high oil and gas prices, and other negative indicators – this letter heralds much-welcome relief to the average taxpayer.

Some weeks ago, I submitted legislation to ensure the Maine tax monster would not find a way to tax away a big portion of this money, which will be $600 for most taxpayers and $1,200 for married couples. The legislation never made it through the Legislative Council, so it will not come up for a vote. But the governor set our minds at ease by promising not to touch the rebate money when it arrives, probably in May and June.

The legislation I submitted also addressed the other critical part of the stimulus package, which is to allow all businesses to more quickly write off the depreciation of new equipment and machinery. You may ask why big business should receive “corporate welfare.” The truth is that mom and pop small businesses also will gain a very large advantage with this stimulus provision. It will enable them to upgrade any equipment they use and to accelerate the depreciation for tax purposes. Many small businesses may need to upgrade computers, software and other technologies to make them more competitive in a global economy.

Depreciation is a broad concept. Simply put, it represents the decline in value of tangible items such as machinery, computers, desks and chairs, and even office shelving. Just as your car depreciates and becomes less valuable as it ages and piles up more miles, so does business equipment. When used for tax purposes, depreciation allows businesses to decrease their reported income and thereby lower their tax liability. This reflects that the equipment and machinery is another year older and closer to being obsolete or unusable.

Law determines these depreciation formulas, so naturally businesses pay close attention to the legislative process. In Maine, business owners understand that we do not conform to the federal dollar amount of depreciation. The federal amount currently is $250,000, while Maine’s stands at $25,000. Maine charges tax on the difference between the two, so we tax $225,000 of the investment. This may sound like a lot of money, but in terms of a business this is a relatively small amount when you figure the cost of equipment and machinery. This “decoupling” of Maine’s depreciation schedule from the federal schedule puts our companies at a clear disadvantage against their competitors in other states.

The problem is that anything that helps Maine business by providing equitable tax treatment becomes a “cost” to the state under the static “scoring” of Maine Revenue Services. MRS attaches a “fiscal note” to any tax bill, which determines how much revenue the state stands to lose or gain by virtue of enacting certain laws or policies.

On its face, static scoring might seem to be a reasonable way to calculate the fiscal impact on state coffers. Unfortunately, it looks at the issue from the single perspective of loss of revenue, while ignoring the overall impact on the economy. For instance, every entrepreneur, corporation or investor figures how much a business will cost to start up. That is what MRS does for the fiscal note. The difference is that the business community then takes it a step further, applying “dynamic” scoring to calculate the return on investment.

MRS does not calculate the economic impact and only considers the “cost” to the state’s balance sheet when determining what is lost or gained. This is a very narrow view of grading the benefits to the Maine economy and advantages for Maine businesses. Keep in mind that when a company buys a new copier or purchases a forklift for the warehouse, it creates business for retailers, delivery services and technical support specialists. None of that new economic activity is factored into the fiscal note, so the bill is shot down due to its “cost” to government. This static and rather absurd approach to estimating the effects of a tax change is partly responsible for Maine’s grim economic situation.

Depriving Maine companies of the full benefit of the stimulus package is short-sighted and damaging to the very business entities that create the jobs that support Maine families, who in turn pay taxes to fund our very expensive state government. While other states understand that helping businesses directly benefits state government, the ruling elite in Augusta seem incapable of grasping that basic economic fact.

It’s really too bad, but it’s hardly surprising. Maine is notorious for its hostility to business and its self-destructive economic policies, and this is just one more discouraging example.

Scott Lansley, R-Sabattus, represents District 75 in the Maine House of Representatives. He is the ranking Republican on the Legislature’s Taxation Committee.