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home : • politics : • government
January 26, 2020

4/23/2015 11:10:00 AM
Eye on Augusta: Corporate Takeover of States' Public Tax Policy; Maine Joins Race for ALEC Rankings
Inside the box -
Jonathan Williams of the American Legislative Exchange Council (ALEC), co-author with Arthur Laffer of “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, 3rd Edition,” with Gov. Paul LePage at a Tax Day press conference last week. (Photo by Andi Parkinson)
Jonathan Williams of the American Legislative Exchange Council (ALEC), co-author with Arthur Laffer of “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, 3rd Edition,” with Gov. Paul LePage at a Tax Day press conference last week. (Photo by Andi Parkinson)
by Andy O’Brien

"Now it's a full-out war on eliminating the income tax until the day I leave this office," announced Governor Paul LePage at his "Tax Day" press conference on April 15.

It had been 13 weeks since the governor had sprung his massive tax overhaul on the Legislature, and his ambitious plan was slowly making its way through the bipartisan sausage-making process. It had come a long way since January 9, when both Republicans and Democrats were gobsmacked by the sudden announcement that the governor intended to raise and vastly expand sales taxes, eliminate revenue sharing, and tax nonprofit organizations in order to offset nearly $300 million in income tax cuts.

Republican leaders, who were clearly not consulted before the plan dropped, could only repeat, "It's Bold. It's a bold plan," when asked for comment at the time. Three days later, when The Free Press asked Republican Senate President Mike Thibodeau whether he supported the governor's proposal to eliminate the mortgage interest deduction, which Thibodeau had previously opposed, he replied, "I have not seen it. Apparently, you've gotten further into the plan than I have."

But there was one group that was already very familiar with the governor's tax reform plan. So familiar, in fact, that on the day the governor announced his budget, the right-leaning Tax Foundation released a comprehensive analysis of the proposals titled: "Maine Gears Up for a Serious Tax Reform Conversation."

"If the Governor's tax plan is implemented, the state's ranking would leap from 33rd to 23rd on the Tax Foundation State Business Tax Climate Index," LePage's office boasted in a press release on that same day.

The foundation's glowing review has been repeated in news stories ever since. But it's seldom mentioned that the Tax Foundation, founded in 1937 by a wealthy group of corporate executives, has long favored cutting income taxes on the rich and replacing them with regressive consumption taxes that fall disproportionately on low- and middle-income people.

During his April 15 Tax Day address, Gov. LePage brought a special guest to back him up. Jonathan Williams, of the right-wing corporate lobbying group the American Legislative Exchange Council (ALEC), congratulated LePage for his "bold leadership" and announced that the LePage plan would move Maine from its 44th economic performance ranking to 32nd on ALEC's own "Rich States/Poor States" business climate index, which was developed by Stephen Moore of the right-wing Heritage Foundation and supply-side economist Arthur Laffer. However, if Maine eliminated its income tax, as LePage promised, Williams said Maine would move "light years ahead in terms of economic development." While it has been nearly impossible to achieve a major realignment of the tax code on the federal level since Ronald Reagan's Tax Reform Act of 1986, Williams said the new focus for conservative groups is on the "50 laboratories of democracy."

"Last year alone, 14 states significantly cut taxes," said Williams, who formerly worked for the Tax Foundation. "The year before that, 17 states cut taxes. Maine was not in those categories. This year in our Rich States Poor States competitive ranking of the 50 states, we measure Maine at 42nd nationally. Now certainly that means that there are storm clouds on the horizon if something doesn't change."

Although Governor LePage called his plan an "outside-the-box" approach, it's obviously a cookie-cutter template designed to boost some arbitrary "business climate rankings" created by corporate-funded national right-wing think tanks. And LePage isn't the only one following the blueprint. As the New York Times has reported, at least eight GOP governors this year have abandoned their sacred "no new taxes" pledges in order to cut state income taxes and shift the burden to consumption taxes.

Corporate-Funded Pseudo Science

ALEC is best described as a corporate bill mill run by large multinational companies and state legislators.

"Through ALEC, corporations hand state legislators their wish lists to benefit their bottom line," according to the liberal-leaning Center for Media and Democracy. "Corporations fund almost all of ALEC's operations. They pay for a seat on ALEC task forces where corporate lobbyists and special interest reps vote with elected officials to approve 'model' bills."

For instance, Gov. LePage recently submitted the ALEC-inspired bill LD 1361, sponsored by state ALEC chairman and Assistant Senate Reublican Leader Andre Cushing, which would override a municipality's right to enact minimum-wage ordinances. If passed, the measure would quash minimum-wage initiatives in Bangor and Portland.

ALEC Corporate members include ExxonMobil, Koch Companies (owned by the billionaire industrialist Koch brothers), PhRMA (the pharmaceutical industry), Reynolds American (tobacco), K12 Inc. (virtual schools), AT&T, Altria (tobacco), Pfizer (pharmaceutical), NetChoice (e-commerce), Diageo (alcohol), State Farm Insurance, UPS, Energy Future Holdings (utilities) and others.

On ALEC's Rich States Poor States index, states are awarded higher rankings based on a handful of policies favorable to the super wealthy and corporations, including low taxes on the rich, anti-union laws and low state minimum wages. Not surprisingly, all of the top 10 "rich states" in the ALEC index are led by GOP governors. While dirt-poor, arch-conservative Mississippi is ranked 20th, rich and liberal New York is dead last.

In a 2013 study titled "Grading Places: What Do the Business Climate Rankings Really Tell Us?," the policy research center Good Jobs First analyzed several business rankings - including those by the Tax Foundation and ALEC - and determined them to be "ideologically charged pseudo science published to further the interests of corporations and rich people."

Good Jobs First Executive Director Greg LeRoy called it "nonsensical" to assign a rating to a state's business climate.

"The needs of businesses and facilities vary far too widely," wrote LeRoy. "Besides, states are not the meaningful unit of competition in economic development: metro areas are, and the conditions can vary more among metro areas within a state than they do between states."

For instance, he noted, some industries need specific pools of skilled labor and/or venture capital, while others may just need cheap electricity.

As LeRoy pointed out, the rankings don't look at whether states are favoring multi-state corporations over small businesses or whether the state is properly investing enough in education and infrastructure. The rankings also differ according to what the priorities are for the group's backers.

"If a state wants to advertise its friendly business climate, 22 can brag they are in the top 10 (according to someone)," wrote LeRoy. "If business lobbyists want to demand business tax cuts, in 24 states they can complain about being in the bottom 10. It's all about what a brilliantly malleable term 'business climate' has become."

For instance, ALEC ranks Maine 44th for business climate, but the Council On State Taxation (COST) and the mega accounting firm Ernst and Young ranked Maine 1st.

"Given these realities, 'business climate' studies must be viewed for what they actually are: attempts by corporate sponsors to justify their demands for lower taxes and to gain public sector help suppressing wages," LeRoy concluded.

A Laboratory for Massive Tax Cuts for the Rich

With ALEC making an in-person appearance to promote the governor's budget, it's clear that Maine is on the radar to become another laboratory for national right-wing corporate ideology. Fortunately, there already is a case study in what happens when ALEC has its way. In 2012, Kansas Governor Sam Brownback hired ALEC's Arthur Laffer to help develop a massive income tax cut that Laffer promised would bring "enormous prosperity." At the time, Brownback called it a "real live experiment" in supply-side economics. While the plan would also deplete revenues, Laffer and Brownback argued that big tax cuts for the wealthy would spur a rush in business investment that would rapidly replace the lost income-tax revenues. That didn't happen.

As the Kansas City Star reported this week, nearly three years later, Kansas has been forced to confront a $400-million-dollar budget gap between revenues and expenses, while job growth has been modest compared to the rest of the country. However, Brownback has stubbornly refused to reverse any of the income-tax cuts, and instead has moved to cut education, divert funding for roads, and raise consumption taxes.

Laffer told the Kansas City Star that while he was "not surprised" by the budget crisis, he "didn't know why the deficits have occurred." He insisted that Kansas "did the right thing" in maintaining its zealous faith that reducing taxes will raise revenue.

"It may be a problem in the short term," he told the Star.

As Kansas Goes, So Goes Maine

But while other GOP governors have recognized Kansas as a cautionary tale of ideological orthodoxy overriding common sense, Gov. LePage has vowed to move full steam ahead. On Tax Day, the governor announced his plan to submit a Constitutional Amendment to abolish the income tax, which would be put out to the voters in November 2016.

"Where there is no compromise is that we want to eliminate the income tax," said LePage. "That will come from the people. I'm convinced that by 2016, the people of the state of Maine will be ripe to do it."

This week, all five Republican leaders of the Legislature, including Senate President Mike Thibodeau, signed on to the governor's bill to eliminate the income tax by 2020.

Currently, the income tax brings in about $1.4 billion, or one third of state revenues. Property taxes generate 45 percent and sales taxes bring in 22 percent. However, LePage dismissed the idea that he would have to raise the sales tax beyond 6.5 percent to make up for the $1.4 billion in lost revenue. Instead, he said he would also focus on cutting welfare, but the state's contribution to the three major welfare programs - General Assistance, Temporary Assistance for Needy Families (TANF), and the Supplemental Nutrition Assistance (SNAP) program only amount to about $52 million. The courts have already ruled that the state is prohibited from cutting more people off of Medicaid, as it would be in violation of the federal Affordable Care Act. So that's off the table.

LePage also said that the state could save a quarter of a billion dollars by cutting "waste" in the education budget by putting more classes online. LePage has made similar claims that the state could save around $200 to $300 million in the education budget, which former Department of Education Commissioner Stephen Bowen said would involve closing "a lot of small schools."

But even if LePage completely eliminated all of the state's welfare programs (which he legally can't) and drastically slashed education spending (which would certainly face legal challenges, as it has in Kansas), Maine would still likely be hundreds of millions of dollars in the hole.

If such a crackpot scheme were to pass, the impact on Maine's budget would make Kansas look like a bad run at the Beano table. And in the end, after making deep cuts to schools and other services, Maine would be forced to jack up regressive property and sales taxes on working-class people, while the rich would get a big tax break. But at least we could boast of high scores on ALEC's and the Tax Foundation's rankings.

Reader Comments

Posted: Wednesday, April 29, 2015
Article comment by: george mcneil

Wasn't supply side economics debunked back in the Reagan era (David Stockman, its major proponent in the Reagan White House, certainly distanced himself from it.)? It is hard to believe that ALEC, Laffer, or anyone else has the chutzpah to peddle this snake oil. Governor Lepage comes off as either sadly out of touch or disingenuous. Let's hope that wiser heads in State government save us from further embarrassment.

George McNeil

Steep Falls, ME

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