Investments a better way to economic development than tax cuts

Victoria Mayer, Colby College

Originally Published in the Bangor Daily News on March 15, 2014.

Gov. Paul LePage’s plan to cut personal and corporate income taxes and eliminate estate taxes as a way to attract corporate investors and stimulate economic development is a short-sighted gamble that would deprive government of the revenues and administrative capacities needed to respond to residents’ needs and future market developments.

In addition to limiting state expenditures, the administration plans to make up part of the resulting shortfall by ending revenue sharing with cities and towns, a move that local officials have testified would put many towns in jeopardy, as they are already scrambling to cover the rising costs of education, snow removal and other services in the face of earlier cuts to revenue sharing enacted by the LePage administration.

The governor, who pegged his re-election campaign on a promise to reduce welfare abuse, has been arguing that towns are spending recklessly, likening revenue sharing to welfare payments. However, testimony by county and town officials like Kathy Littlefield, chairwoman of the Waldo Board of Selectman, rejects the governor’s interpretation, likening the move to yet “another partnership, another trust, another promise … broken.”

“There will be no going back,” she warned, because doing away with revenue sharing will be “the final nail in the coffin.” The threat posed by this policy direction will likely extend beyond its negative effects on our economy and our standard of living. It will likely also harm our democratic institutions. As residents face rising property taxes and declining municipal services, should we be surprised if they also lose faith in government, triggering a further decline in democratic participation?

But the problem doesn’t stem from the limits of government. It comes from the current administration’s decision to join the race to the bottom in order to attract investment.

Is there an alternative? Yes. Revisiting the history of our own country, political scientists like Joe Soss have shown how government investments in infrastructure, education and social insurance fostered the greatest period of sustained economic growth in the U.S. from the end of the Depression to the late 1970s. Soss, a professor at the University of Minnesota’s Hubert H. Humphrey School of Public Affairs, argues that, like this earlier period, what we need is not government retrenchment, but government programs that advance citizens’ abilities to pursue their own goals.

Like the LePage administration, this approach associates economic security with good jobs, and it aims to foster job creation. It involves going about it, however, by investing in Maine’s communities.

Corporations large and small need reliable access to skilled workers, affordable energy and raw materials, effective transportation systems, information, financial services and markets. Corporate investors will find it more difficult to replace these resources than to find new locations willing to reduce the taxes they have to pay. And should they be tempted to chase tax incentives elsewhere, these investments in our communities would remain here, unlike the income corporations would retain under the governor’s budget plan.

And what about democracy? During the 1990s, Democrats and Republicans in Congress agreed that the country needed to pass greater decision-making authority down to the state and local levels, where citizens can play a more active role in deciding what’s best for their communities, and where they are better able to hold their officials accountable for their actions.

In contrast to that principle, the LePage administration’s plan to end revenue sharing in order to cut personal and corporate income taxes and to end the estate tax would transfer resources currently used by local officials to serve their communities to private hands where they would be beyond public accountability.

Victoria Mayer is an assistant professor of sociology at Colby College in Waterville. She is a member of the Maine chapter of the Scholars Strategy Network, which will host political scientist Joe Soss on March 17 for two talks, which are open to the public. Soss will speak in the Bangor room of Memorial Union at the University of Maine from 12:30 to 1:45 p.m. He will speak at the Maine Peace and Justice Center at 96 Harlow St. in Bangor from 5:30 to 7 p.m. A reception will begin at 5.

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