In an attempt to “tackle Maine’s workforce shortage and attract high-value industries,” Gov. Janet Mills spearheaded an effort this year to refurbish an existing corporate welfare program and convinced lawmakers on both sides of the aisle to support it. The governor can call the new program whatever she wants, but it’s still corporate welfare – it gives handouts to select businesses at the expense of all taxpayers.
The governor’s program replaces the outgoing Pine Tree Development Zone program (PTDZ) established in 2003. The PTDZ program offered eligible businesses the ability to reduce their state tax burden for up to 10 years if they created new, quality jobs in certain sectors or moved existing jobs in those sectors to Maine. Those sectors were limited, but if a business fell within the parameters, they could receive many benefits, including corporate tax credits, sales and use tax exemptions, employee benefits and reduced electricity rates.
The only two counties exempt from the PTDZ were Cumberland and York, although a few municipalities within those counties were eligible. Not only was the PTDZ program unsuccessful in bringing big companies to Maine, a legislative report found the state could not effectively administer it. According to the Office of Program Evaluation and Government Accountability 2017 review of the PTDZ program:
“…the program cannot be effectively administered for two primary reasons. The first is that the program’s administration is fragmented. There are several agencies involved and there is no single entity with statutory authority to oversee or coordinate the PTDZ benefits distributed by the others. In addition, there is no single agency with access to utilization data for all the program’s benefits. The second major issue is that many PTDZ benefits are designed in a way that makes monitoring and enforcement resource-intensive to a degree that renders those efforts unreasonable.”
Gov. Mills proposed a revamped version of the PTDZ to “modernize” the program, dubbing it the “Dirigo Business Incentive.” Under the new language, businesses that pay to train three or more workers in an approved employee training program, such as an internship or community college training, may be eligible for a $2,000 tax credit per worker trained. Further, businesses across most of the state could receive up to 15 percent in credit for capital investments, or a 7.5 percent credit in York, Cumberland and Sagadahoc counties.
Mills’ new program makes all of York and Cumberland counties eligible for credits that they were not eligible for under the PTDZ program. These credits are specifically targeted towards high-value sectors and industries, including manufacturing, agriculture, fishing, logging/forestry, freight, software and certain professional services like scientific research that attempt to attract and expand high-growth sectors in Maine.
With a higher tax credit per trained worker and a potentially larger capital investment percentage, Gov. Mills didn’t create anything new. Instead, she simply modified the old incentive and replaced one handout with another.
Instead of lowering the cost of doing business for all Maine companies by restructuring the tax code or reducing regulations, the governor doubled down on failed corporate welfare policies. While big businesses love these handouts, corporate welfare simply doesn’t foster long-term economic growth. According to the Center for Economic Accountability, 2022 was the worst year for corporate welfare megadeals:
“…America’s economy may be in a state of disruption, but the evidence is that the unprecedented pace of billion-dollar deals in 2022 is being driven more by the political response to economy than by actual economic best practices.These deals fly in the face of a broad consensus among economists and independent experts that economic development subsidies rarely change corporate decision-making and have little – if any – impact on employment rates or other measures of economic well-being. Both academic research and real-world evidence agree that these forms of corporate subsidies are generally ineffective at best and actively harmful at worst in their impact on a region’s economy.”
There’s no doubt that Maine’s economy needs help, but little evidence exists to suggest that modified corporate welfare programs will help turn things around.
A 2022 report by Maine Economic Growth Council shows the state’s economy is struggling. The report found that Maine ranks fourth-highest in state and local taxes as a percentage of income. Further, Maine’s labor force participation has decreased from 63% in 2019 to 58.5% in 2023.
It’s speculated by the Department of Labor that two-thirds of those workers who left the workforce during the pandemic have since retired, and it’s unclear if they will return. But their absence from the workforce isn’t due to a lack of training programs, which is the focal point of the governor’s new plan. In addition, it’s also generally expensive to start, run and maintain a business here. CNBC’s 2023 Top States for Business rankings place Maine at 39th in the nation.
The PTDZ was in place for 20 years and didn’t yield its intended results of a thriving economy with new businesses making substantial investments in Maine. Therefore, it just doesn’t make sense to keep similar programs on the books.
States that maintain low regulatory fees and taxes while encouraging entrepreneurship and innovation often see greater population and economic growth than states that choose a different path. Maine could do far more to encourage investment and business growth by adopting this economic formula than by modifying or expanding existing corporate welfare programs.
Instead of corporate welfare, policymakers should be looking at how the tax code can be restructured in the absence of these giveaways. As noted by the Mercatus Center, reforming the tax code would be far more beneficial to every business and individual in Maine than poorly targeted tax incentives for large businesses. The opportunity costs of Maine’s ineffective corporate welfare programs could instead be used to reduce the corporate tax rate by 25% and personal income taxes by nearly three percent. These reductions would be far more impactful for all Mainers than the current handouts to select businesses.
The results of corporate welfare speak for themselves. Gov. Mills had the opportunity to change course this session to reduce taxes and promote job creation for all Mainers. Instead, she decided to continue picking winners and losers in tax policy through an ineffective, refurbished corporate welfare program.