Job growth in Maine depends on a logical, stable and consistent base of regulation and taxation. This is a bipartisan message that should not find too much opposition, even in the midst of an election year.
At a time when pro-growth policies such as depreciation and capital equipment incentives are in the spotlight, it is extremely important to understand why tax “conformity” matters to expanding business in our state and how these policies support economic growth and investment in Maine.
To start, the Maine Constitution requires a balanced budget. This forces the leaders of our state to forecast revenues one or two years ahead of time, then come to an agreement on use of that forecasted revenue.
Businesses, of course, operate on budgets based on forecasts, too. But in order to secure investment, businesses are often forecasting and developing five- or 10-year business plans, not just one- or two-year budgets. Part of this budgeting includes depreciating assets over their useful lives.
Depreciation shouldn’t be all that controversial. In short, our federal and state tax policies allow businesses to estimate the useful life of capital equipment that is used to generate revenue, such as expensive manufacturing equipment, then deduct its cost as a business expense over a defined period of time.
A coherent, reliable depreciation policy is critical to incent investment to bring new products to market and grow manufacturing jobs in Maine. If businesses cannot forecast reliably and budget with some certainty over the years ahead, then they are negatively impacted by a public policy that is not providing a stable, consistent tax and regulatory base. If Maine policymakers are serious about growing jobs in this state, they unequivocally should support policies that help provide consistency and stability to our business environment.
Long-term analyses are used by businesses when they are determining whether and how to invest in capital equipment in Maine to sell more products or become more efficient. For companies that are heavily reliant on innovation, this becomes a critical issue for the product development lifecycle. When an entrepreneur or a scientist or a marketing team has an idea for a new product, their first hurdle is to secure the capital necessary for research and development needed to commercialize their new product or service. Research and development is expensive, it takes time and companies at this stage must forecast out years in advance and include the purchase and use of expensive capital equipment needed for research and pilot manufacturing.
Companies then have to commercialize their new product. This also takes time and requires even larger amounts of capital expenditure to install facilities and manufacturing equipment. Concurrently, innovative companies must often design new manufacturing technologies and processes to remain competitive within the U.S. and abroad. This makes the capital outlay to bring new products to market ever more expensive.
Remember, companies are purchasing equipment that is customized and installed right here in Maine, often by Maine companies, where Maine workers use it for manufacturing or to provide services. Our state needs to provide policies that help bring new ideas to market, and that includes supporting capital equipment purchases that directly impact the cost of goods made in Maine.
Let us also remember there are relatively few “large” businesses in Maine. We are a state of small- and medium-sized businesses. One way Maine policymakers can improve the business climate for these businesses is to ensure we have a welcoming, stable and consistent base of regulation and taxation in Maine. Investment capital likes predictability and clarity. Aligning state tax policy to the federal code in the treatment of high-cost capital equipment is a commonsense improvement that should not be treated as a partisan issue, especially at a time when the creation of new jobs is so critical.
The most significant part of attracting any capital, whether you are an entrepreneur wooing investors or you are a division of a larger corporation, is determining there is a market for your new product and that you can manufacture the product or provide the service at a price that customers are willing to pay. That requires an ability to forecast the future. Maine businesses and, by extension, Maine workers are truly disserved by our policies if decisions to invest are withheld, delayed or changed because of uncertainty of tax treatment in 2016, let alone the tax year 2015 returns, which are being filed in an uncertain limbo.
Bryan Bozsik is a resident of Westbrook and president of the Bioscience Association of Maine Board of Directors.