Corporate Close-Up: Maine. The Way Life Should Be? The Pine Tree State’s Plan to Trade Tax Breaks for Clean Elections.

Last Tuesday was Election Day and Maine voters passed Question 1, which expands the state’s publicly financed campaign system. Funding for the new system will derive from ending $6 million in corporate tax incentives or closing perceived loopholes.

The purpose, of course, is to improve political dialogue and shed light on who pays for political ads and largely came in response to the Citizens United decision, which held that political spending is protected speech under the First Amendment, and the government may not prohibit corporations or unions from spending money to support or criticize individual candidates in elections. Behind the scenes, though, Question 1 could gut the business tax incentives that so many other states are using to entice corporate investments, which means Maine is going against the grain in more ways than one.

The Maine Clean Election Fund is funded in part by tax revenue, increased from $2 million to $3 million by the passage of Question 1 and generated by reductions in tax expenditures. For purposes of the Maine Clean Election Fund, “tax expenditures” are losses of state revenue created by laws that provide special exclusions, exemptions or deductions, or allow special credits, preferential rates of tax or deferral of tax liability.

So, what does this have to do with corporate income tax? Potentially a lot, actually.

Question 1 places a bull’s eye on corporate tax “expenditures” by directing the joint standing committee of the Legislature having jurisdiction over tax matters to create legislation to eliminate $6 million in tax expenditures every two years. Priority for elimination is given to “low-performing, unaccountable tax expenditures with little or no demonstrated economic development benefit as determined by the Office of Program Evaluation and Government Accountability.”

Question 1 does not specifically define the term “corporate tax expenditures,” but the final Proposal for Legislative Review of Maine State Tax Expenditures indicates that any and all state tax expenditures could be subject to review. If $6 million in corporate tax expenditures must be cut every two years and priority is given to the expenditures that generate the least return on investment, Maine could end up slashing a substantial amount of corporate tax incentives to reach the required amount.

In short, voters in Maine have tied the legislature’s hand, forcing them to sacrifice corporate tax incentives to fund a mostly public activity. The question is whether this was about campaign finance reform or the value of corporate tax incentives. Clearly, there has been much made of tax breaks issued by states to major corporations in recent years. From Texas to Massachusetts to Georgia to Nevada, states and localities have scrambled to lure corporations and the jobs that follow in with breaks on property taxes, employment taxes, sales and use exemptions and cuts to corporate tax bases and rates.

At this point, there are more questions than answers about what impact Question 1 will have on business activities in Maine. Will lobster prices keep going up or will we have to pay more for toothpaste and boat shoes? Will this have any effect on the Belgrade Lakes Annual Loon Calling Contest, which my brother, in fact, dominated for at least two years in the late 80s? It’s too early to tell. But, please, not the Loon Calling Contest.