Economic Development

Private-sector job creation must be the next Legislature’s top priority. To repeat former Governor Joe Brennan’s mantra, “the best social program is a job.” All other social programs, designed primarily for the jobless and their families, feed off of economic production. Turning our entrepreneurs loose will help preserve the public-sector safety net while at the same time reducing the need for it.

We have entered a business climate where job creation is being thwarted. Keep in mind that a business owner functions best when he can safely project future costs. He will invest in his business only if he can reasonably expect that revenues will surpass costs. Presently the soaring costs of two inputs, healthcare and energy, make it difficult for the entrepreneur to plan ahead. With so much uncertainty about future costs, he is less likely to expand his business.

There are three ways that government can reinvigorate business investment. Each of these strategies can help businesses reduce risk and maintain positive cash flow in a distressed economic environment. We must:

· replace employers as purveyors of healthcare coverage.

· stabilize the price of energy by diversifying the supply.

· introduce tax incentives for new business investment.

The first task—which must be applied nationally, not state by state--is to decouple health insurance from employment. Employers who currently provide health benefits will convert their healthcare premiums into higher wages for employees, who will then obtain their own coverage. The benefit to business owners: a fixed, predictable payroll tax that eliminates (1) the costs of negotiating and administering health plans, (2) the uncertainty of wildly escalating insurance premiums, and (3) the costs of seeking legal relief from state mandates. Maine’s Dirigo Health Program, incidentally, delays progress toward this outcome by keeping employers enlisted in the provision of health benefits.

Second, we must break our addiction to foreign oil. Because the bulk of it comes from a politically unstable region, its price includes a risk premium that is both sizable and volatile. The good thing about rising oil prices is that Mainers are now motivated to pursue alternative sources of energy that will ultimately be more dependable. Petrodollars will be redirected to homegrown enterprises, funding jobs here rather than terrorist camps over there. State government can help by streamlining regulations that can choke investment in power generation and transmission and by providing loans and/or subsidies to button up Maine homes now leaking BTUs during the heating season. As we transition to a new energy regime, releases from the Strategic Petroleum Reserve can be timed to dampen speculative spikes in the price of oil.

Third, a fine-tuned tax policy can counteract a deteriorating economic environment, in which start-ups must achieve profitability as quickly as possible. Currently Maine waives the corporate income tax for five years for new companies locating in so-called Pine Tree Zones. Forget the political gerrymandering; make the whole state a Pine Tree Zone. Follow the income-tax moratorium with a tax deduction for new jobs created. Eliminate the personal property tax and the two-tiered treatment of old vs. new business equipment. Allow companies to expense rather than depreciate capital investments so that they can better align tax liabilities to real-time cash flow. Finally, free up risk-averse capital with expiration-dated moratoria on capital gains taxes for investors and on corporate taxes for lenders. This will release start-up capital for qualifying businesses.