Corporations paid a record amount of income taxes in Maine last year – and the state's financial analysts are trying to figure out why.
Maine's Revenue Forecasting Committee said Tuesday that it expects the state to collect $223 million more in taxes than originally projected for the fiscal year that ends on June 30. That’s normally good news for the lawmakers charged with crafting a state budget.
But Mike Allen, who is associate commissioner of tax policy in the Maine Department of Administrative and Financial Services, told members of the Legislature's budget-writing committee on Tuesday that he and other tax experts are concerned about one contributor to that surplus. Allen said Maine received $415 million in corporate income taxes this fiscal year, which is more than double the amount collected just four years ago. Those are historic levels of corporate tax receipts and Allen said “that is concerning us because we really can’t explain it well.”
"It's baffling us a little bit,” he told the Appropriations and Financial Affairs Committee. “The only thing that gives us a little bit of comfort is that every other state that has a corporate income tax return is seeing similar, historic growth in their corporate income tax receipts and they are struggling to explain it as well."
Allen said it appears that corporations have been paying more to the state than they should be. And rather than asking for a refund, many corporations ask to apply that money to the next year's tax bill. But Allen said companies are simultaneously still making tax payments and he's concerned that could set up a situation where the state could accrue a large liability to corporations down the road. While he and others are still analyzing the latest tax data to determine what steps, if any, to take, Allen estimated the overpayments could be to the tune of $100 million.
“They just pay in and for a small state like Maine, it’s sometimes on automatic pilot . . . but it does sort of set up a scary situation that if they do decide they need those funds are ask for them,” he said.
The revelations about corporate income tax over-payments are likely to come up in the ongoing discussions around the State House about tax cuts.
Republican leaders are calling for the Legislature to provide $400 million in tax relief to Maine residents this session. Democrats who control the Legislature and Democratic Gov. Janet Mills, meanwhile, have yet to signal any interest in broad tax cuts. Over Republican objections, Democrats pushed through a roughly $10 billion, 2-year budget earlier this spring that essentially maintains the status quo in terms of government services. The Appropriations Committee is now expected to craft a package of changes to that two-year budget based on the latest projections from the Revenue Forecasting Committee.
“Republicans are calling on Democrats to commit to working with us to end the practice of over-collecting and over-taxing our citizens and then sending part of it back to some,” the Republican caucuses in the House and Senate said in a joint statement last week after preliminary revenue projections became public. “This practice of picking winners and losers must end. With our bills covered for the next two years, there is no good reason why we cannot commit $400 million to provide comprehensive relief to taxpayers out of a budget that may ultimately reach $10.8 billion. This can be done without cutting any services or existing programs. We stand ready to work with Democrats to help workers and their families who have lost, on average, $7,500 in purchasing power this past year from out-of-control inflation due to failed economic and energy policies.”
One question raised during Tuesday’s meeting, however, was whether corporations are taking advantage of the inflationary economy to raise their prices even higher in order to reap more profits. Corporations had been hauling in record profits until the end of last year, and some economists say profit-related price increases have been a key driver of inflation.
Rep. Rebecca Millett, D-Cape Elizabeth, questioned whether corporate desire for profits could be contributing to the doubling of corporate income taxes in Maine and, in turn, contributing to inflationary pressures.
“I don’t know of very many examples of when, after a period of time, corporations voluntarily decreased their prices,” Millett said.
“I think that is certainly one reason for what we are seeing,” Allen said.
According to a Wall Street Journal article published Tuesday, the European Central Bank found that prices in the European Union were 7% higher in April than one year earlier but that inflation had declined to 5.6%. The article also outlined multiple examples of companies increasing their prices and profit margins on products in the midst of inflation.
