Fixing The Blame For the New Markets Tax Credit

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Beacon POD Cast

June 12, 2015 – The New Markets scam
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In this episode of the Beacon podcast, Maine People’s Alliance political director Ben Chin interviews Joel Johnson, an economist for the Maine Center for Economic policy, and attempts to make the deliberately-complicated New Markets tax credit scam (through which out-of-state corporations have fleeced the Maine taxpayers of more than $30 million) a little more understandable.

This Beacon POD Cast is presented by Mike Tipping, Bangor Daily News Journalist and Director of the Maine People's Alliance, who tells us in his introduction that Chin and Johnson are going to "dig a little deeper" into the New Markets Tax Credit and repeats the ubiqutous media line that one of the reasons why the scam hasn't caused more public outrage and government action is because it is "so deliberately complicated". This line is the explanation officially adopted by the main stream media as the villains of New Markets Tax Credit scandal are identified as "out of state investors".

 I submit that the first set of villains are found in our own home grown Augusta political culture which cannot reasonably be so naive as not to know that refundable tax credits are prolific through out the economic development policies which, for decades, said culture has entrenched in Maine. How irresponsibly naive can the political culture in Augusta be not to recognize that the refundable tax credits themselves are routinely transferring the wealth of Maine tax payers to the bank accounts of a new class of owners of the means of production ? How can they not know that refundable tax credits are the root cause of the scandal, a root cause which the media and economic development culture of Maine are scrambling to cover up as they lay the blame on out of state investors and the one day loans- anything but the refundable tax credits and themselves !.

The newly enacted Maine New Markets Capital Investment Program and the expansion of the Maine Seed Capital Tax Credit(both occurring after publication of the Ernst & Young/COST study) further help to ensure that start-up businesses can receive equity and debt financing on favorable terms, thus allowing them to make additional capital investments in machinery, equipment, and hiring employees.  quoted from Journal of Multistate Taxation and IncentivesVolume 21, Number 8, November / December 2011Department: ECONOMIC DEVELOPMENT AND POLICYMaine: Ranked Number One for Low Tax Burden on NewInvestment and Job Creation (emphasis mine-article found on Pierce Atwood website- the legal firm said to have written the law for their clients which was subsequently passed by the Maine legislature whose key sponsors recieved generous donations to their political campaigns)

means of productionplural noun 1.(in Marxist theory) the raw materials and means of labour (tools,machines, etc) employed in the production process dictionary.com

In the quote above, I emphasized the words "favorable terms" as applied to the businesses, in support of my case that the people's representatives do not represent the interests of the people in which case the terms would be favorable to the taxpayers. The taxpayers are treated as the pawns in the game. The elected representatives of the people represent the interests of the Maine Development Corporation, which is statutorily formulated as a set of public-private relationships which have the use of taxpayer's money to capitalize its own agenda. A public-private relationship formed for the purpose of a special interests can never be synomynous with the common good. The deals that the representatives of the Maine Development Corporation arrange (by which I mean the Maine legislature and administration),  allow the public-private hegemony to acquire the means of production in which the taxpayers will be employed as wage earners after having financed that owership but without sharing in it, not voluntarily, but as so mandated by elected representives who serve the interests of the hegemony. The start up businesses which are the benficiaries of the states redistribution of wealth via refundable tax credits and other mechanisms are the future owners of the means of production.

pawn   [pôn]

The definition of a pawn is a person or thing manipulated and used by others, or a game piece in the game of chess.
A person unwittingly used in a scheme and taken advantage of by others is an example of a pawn.
A chess piece that has the least value to the player is an example of a pawn..http://www.yourdictionary.com/pawn

The interview is between Ben Chin, Political Engagement Director of the Maine People's Alliance and Joel Johnson, an economist for the Maine Center for Economic Policy. two organizations from Maine's left wing which is positioning itself as the party that is doing something about getting back the money stolen from the taxpayers via the New Market's Tax Credit scandal but like the right side of Maine's political spectrum, is engaged in damage control in which the scandal is framed as exclusive to the New Markets Tax Credit and the blame is placed on out of state investors and the one day loan. 

“Essentially, it just facilitates a sort of crony capitalism,” said William McBride, chief economist at the Tax Foundation, a right-leaning think tank. “A lot of these highly targeted tax credit programs are a way to funnel cash out of the general coffers and into some very, very select special interests.” (emphasis mine) The fact that Maine made its tax credits refundable means the program is “extra dangerous,” McBride said.Payday at the Mill by Whit Richardson

Mike Tipping tells us that Mr Chin and Mr Johnson are going to make the scheme "a little more understandable"  Mr Johnson tells us in a matter of fact way that the New Market Capital Investment Program was created by legislature (with a little help from Pierce and Atwood according to Mr Richardson's reporting) - providing for 100 million in refundable tax credits to make it easier for out of state investors to invest in Maine by "reducing their risk". There is repeated emphasis on the use of the New Markets Tax Credit to connect out of state investors who will invest in worthy projects in rural economically distressed areas...that wouldn't otherwise get the investment"
In recent news it is reported that New Markets Tax Credits are being used at MRRA- where in 2011 the medium income for the Midcoast area was $45,708

Regional Demographics (2011) The communities in the midcoast region offer a high quality of life, a hardworking and skilled labor force, excellent educational resources and an innovative business climate. The region is home to a number of major employers, including L.L. Bean and Bath Iron Works. Bath, Brunswick and Topsham are the major communities in the region. Counties: Cumberland and Sagadahoc Regional Population: 397.8 sq miles (1030.297 km2 ) Population Density: 226.95 sq miles (587.797 km2 ) Median Age: 41.6 years Median Income: $45,708 Largest Nearby Cities - Lewiston/Auburn: 19 miles (30.58 km) - Augusta (Capitol of Maine): 30 miles (48.28 km) - Portland: 35 miles (56.32 km) - Boston: 130 miles (225.30 km) - New York City: 350 miles (563.27 km) - Situated within commuting distance of 70% of Maine’s population

 In Per Capita Personal Income by State, 1990 to 2012 published by Bureau of Business and Economic Research, University of New Mexico, the medium household income for Maine is listed at 39,481 for the year 2012. That means that the medium income for the Midcoast area for the year 2011 is about 14% higher than the medium income for the state for the year 2012. Factor in that in the area of the town of MRRA, a primary beneficiary of Maine's corporate welfare system. the wages will be even higher as the requirement for recieving corporate welfare is that the companies created jobs paying higher than average for the area, a steadily increasing target and then factor in that the wage statistics reported here for the entire Midcoast Area are four years old. Now make sure you swallow the story line about the New Markets Tax Credit is being used for rural economically distressed areas with a large shaker full of salt !

When Roney and FAME’s staff voiced concern over the deal’s structure, Chris Howard, the attorney from the Portland law firm Pierce Atwood who helped create the program and represented Stonehenge, Enhanced and Cate Street in the deal, argued that the use of one-day loans would be eligible under the federal program, so should be under the Maine program, as well.Payday at the Mill by Whit Richardson

Mr Chin asks Mr Johnson to explain refundable tax credits. First Mr Johnson explains non refundable tax credits in a way that suggests that they are not a good value because if one has a 200 dollar tax credit but only owes 100 dollars in taxes, one cannot use the other 100 dollars in tax credits- so enter refundable tax credits, while cloaked with the name of a tax credit thay are direct cash payouts to the investor in which the taxpayer receives no share of ownership but is rewarded for his contribution by being granted an opportunity to work for a wage. or so we are told. The way every action of the public-private hegemony is justified as job creation one might think  that the solitary purpose of the whole shebang is to give people the opportunity to work for a wage ! Which couldn't happen any other way of course ! or so we are told !

To clarify, I am not intending to disparage working for a wage. Many people are happier this way but the wage earner should not have to capitalize the means of production without sharing in the ownership. This would never be acceptable in a free enterpise society, but a free enterprise system cannot co-exist with a centrally managed economy, and so we can no longer describe the economic system in Maine as a free enterprise system. 

1983 §961. Finance Authority of Maine Act 

The authority will serve a public purpose and perform an essential governmental function in the exercise of the powers and duties conferred upon it by this chapter.Any benefits accruing to private individuals or associations, as a result of the activities of the authority, are deemed by the Legislature to be incidental to the public purposes to be achieved by the implementation of this chapter.(emphasis mine)

It is merely incidental that refundable tax crtedits are a very favorable deal for the capitalists because in the private sector said capitalists would have to exchange a share of the profits to get another party to invest in his business   It's the taxpayers money that Maine State Inc is trading in return for an asset for itself in the form of  high end income tax revenue on labor. It's a win-win for the Maine Development Corproation and their pals.

To the question of why classes exist in human societies in the first place, Karl Marx offered an historical explanation that it was the cultural practice of Ownership of the Means of Production that gives rise to them. This explanation differs dramatically from other explanations based on "differences in ability" between individuals or on religious or political affiliations giving rise to castes. This explanation is consistent with the bulk of Marxist theory in which Politics and Religion are seen as mere outgrowths (superstructures) of the basic underlying economic reality of a people [5]Wikipedia- Means of Production

The jobs that are created are for private individuals as are the private profits made by the owners of the means of production and so all together fall into the category of "incidental to the public purpose" The unspoken side of the legislature's rational is that any costs or harm acrurring to private individuals are also deemed to be incidental to the "public purpose",  leaving one to speculate what is the "public purpose" ?

 The definition of the purpose in the FAME Corporation statute begins with the words "There is a state wide need" State wide purposes are repugnant to Maine Constitution Article IV Part Third Section 14 which prohibits the legislature from chartering corporations by special act of legislation with an exception for "municipal purposes", whch arguably is intened to exclude "state purposes" .

The jobs created are not state wide jobs but state wide taxpayers are subsidizing those jobs.  The "state wide need" described in the statute could just as well say "anything and everything" and so the "public purpose"- of the Fame Corporation becomes to centrally control everything and anything. This is a collectivist political philsophy (versus the individualism protected by the American political philsophy) deemed into law by the Maine legislature.What ultimately follows from this line of reasoning is state ownership of the means of production and that is already in the works. The paragraphs that follow the declaration of a public purpose enuemerates various financial tools that the FAME corporation can exercise to perform the function of redistributing wealth, which practice reveals to be intended to be redistribution of public wealth to the new class of owers of the means of production-a transference which is supposedly "incidental" to the public purpose of the FAME corporation - OR To be specific the transference of public wealth to a new class of private owners of the means of prodiction is "incidental to the public purpose" . The public purpose then becomes state ownership of the means of production, consistent with Marxist political philosophy. Should our legislature protest to this interpretation of their policies, then it is fair to ask them to explain why they, having jurisdiction over education at the University of Maine, have an entrenched a minor in Marxist and Socialist Studies since 2004 or so? Including this:

Marxist Philosophy I: The Philosophy of Karl Marx
2014-2015 Undergraduate Catalog
PHI 342 - Marxist Philosophy I: The Philosophy of Karl Marx
Special attention is given to the Marxist theory of knowledge, ethics, political and social philosophy as formulated by Karl Marx in his theory of knowledge, ethics, economics and political philosophy. Additional readings from Friedrich Engels and Mao Zedong.
General Education Requirements: Satisfies the General Education Ethics and Western Cultural Tradition Requirements.

BUT If one searches the cirriculum of the University of Maine for "Federalist Papers" , There are no matches and one gets a list of results in response to the word "papers".

"Maine Government" under "Maine Studies" brings up this description:

POS 362 - Maine Government Print Course
POS 362 - Maine Government
Analyzes changes in the institutions and policies of the state of Maine in recent times.  Covers the role of Maine in the federal system, the impact of institutional and organizational reform, and state policymaking.

A search for Maine Constitution on the University of Maine cirriculum brings up a few courses on the American Constitution but nothing on the Maine Constitution  (too local a government?)


The University of Maine is a key corporation in the Maine State corporate network and is also the location of the state's Advanced Manufacturing Center- ie state owned means of production. The Maine legislature has jurisdiction over the educational system. The fact that an examination of the cirriculum being offered at the University of Maine, a course in Marxist and Socialist Studies is offered as a minor and that there appear to be no courses in the Maine Constitution is testimony to the intentionality of the political philosophy that is being implemented by the Maine legislature and their own willful ignorance of the Maine Constitution to which that body takes an oath of loyalty! So loyal are they that they omit studies in the Maine Constitution in the public educational system over which they have jurisdiction !

Mr Johnson appears to have not yet made the transition to a new lexicon to be used to explain refundable tax credits to the people burdened with the costs . He tells us that the refundable tax credit is "basically as good as cash" which is a turn of phrase that the Maine Development Corporation might use to market the tax credits to capitalists to help "soften the risk". Mr Chin, to his credit , does ask Mr Johnson if the state recieves anything in return, but does so far too meekly. Mr Johnson tells us that the state is giving away taxpayers money as tax credits in trade for investments which "wouldn't have otherwise happened". He uses the voice of the collective taxpayer when he says that they (the taxpayers) decided "We're going to "bite the bullet" because we need investors but with the understanding that investors are putting down 61 cents down for every dollar and that  61 cents is at risk !

EXCUSE ME ! But that's the deal with being an owner ! The owner takes the risk and makes the profit. The wage earner is not taking a risk. The wage earner knows exactly what he is going to make for the hours that he puts in and he is due his pay whether the owner makes a profit or not ! The wage earner doesn't generally share in the profit because he isn't taking the risk and likewise doesn't share in the risk because he isn't sharing in the profit ! In the deal written by the Maine legislature, the taxpayers are taking the risk- 39% of the risk and the Cate Street Scandal clarifies that like a big exclamation point ! But Mr Johnson wants us to focus only on the risk being taken by the profit makers ! as if to say they are suffering too great a burden in having to take the risk in orrder to reap the profits- and as if to say the only and sole purpose that any of the players in this scheme is to create jobs for wage earners. Profit- why that's merely incidental and insignificant ! Don't let's go there !

The deliberately chosen context of this interview begins and ends with the New Market Tax Credit and so the fact remains outside the parameters of the chosen context that in the case of the Seed Capital Tax Credit,  taxpayers are refunding 60% of the capitalists investment and that 60% is at as much risk as the 40% that the capitalist invests, if he invest that much, taking into consideration that the capitalist may have had his original investment doubled by the Maine Technology Institute before applying for The Seed Capital Tax Credit which would mean that the taxpayers refund 120 % of the capitalist's pre-MTI matching fund investment and there in lies the deliberatly complicated design so intentionally hidden for all these years from the tax payers - that is to say the design built into an entire system of economic policies in which each part is presented as if it is a stand alone part with no relationship to all the other parts.

As an economist for the Maine Center For Economic Policy,  Joel Johnson  knows that the issue when framed as refundable tax credits extends well beyond the New Markets Tax Credits and includes the Seed Capital Tax Credit and more:

Testimony in Support of LD 1287, An Act To Ensure That Tax Expenditures Create High-quality Jobs
This bill is about fiscal responsibility and ensuring that public dollars are spent wisely. It would bring transparency, accountability, and enforcement mechanisms to four large economic development incentive programs: the Seed Capital Investment Tax Credit, Pine Tree Development Zone Tax Credits, the New Markets Capital Investment Credit, and Employment Tax Increment Financing. Maine Center For Economic Policy June 10 2015

The taxpayers could never have made the decision attrributed to them by Mr Johnsons, even if they really did have one collective mind, because until the New Markets Tax Credit scandal broke, the word "refundable" wasn't ever used by the powers that be when discussing  tax credits and so most taxpayers did not have the information that Mr Johnson credits them with having when they made their collective decision, as told by Mr. Johnson. 

To be clear: The taxpayers are the only contingency which has to bite the bullet. The legislature is arranging a sweet deal to procure a financial asset for the Maine Development Corporation (formerly know as the State of Maine) in the form of a high end revenue stream derived from taxing labor in the "targeted sector" where in, the state is dictating high end pay and benefits in exchange for the generous corporate welfare being delivered to the new private owners of the means of production. At the same time the Maine Development Corp is developing its own ownership of the means of production complete with legal claims on the owership of intellectual property rights. The question is why does a so called "state" need the rights to the ownership of intellectual property? Is marketing intellectual propeerty in the commercial market now entrenched as an "essential government function"?

Mr Chin and Mr Johnson wind up their discussion by placing the blame for" not fixing the problems in the program" on "the corporate side of the Republican Party  ( versus the Libertarian side of the Republican Party) where as the good guys - the Democrats- have a bill to get our money back in this one deal, as if that solved the whole problem.. rather than evading it.

We are told that The Democrats are developing a peice of legislation to protect the taxpayers from future theft at the hands of our of state investors,  but true to form there is no link given to the legislation or even an LD number to give a clue as to how to find it.  We are told that said legislation  lets the state decide if, even though a transaction is legal by "the letter of the law",  it can be designated as  a "sham transaction" . This is described as an "independent review"- from other government agencies ( another department of Maine State Inc). If the other party doesn't agree then the other side can bring that case to court. It sounds so reasonablle when considered from the purity of the scam only context but when considered in a general context it is a dangerous, totalitarian transition. The state writes all the laws and now it will also be the judge? Why would any business, honest or otherwise want to do business in Maine knowing that the state can just change the terms of agreement any time it so chooses ? Especially with the state's already established banana republic precedence in the case of Statoil? 

 After spending a lot of time saying that the Governor should cancle the payments on "sham transactions", in closing,  Mr Johnson says: "This is an incredibly complicated law and Im learning something new every day by digging into it. Part of the reason they are complicated is because only the people that benefit from them actually understand it and that is why it is so important when news papers like the Portland Press Herald dig into this issue and help economists like Mr Johnson understand it- and he thinks the legislature as well  HUH? The is an economist speaking?

You don't have to be an economist to notice the ethical mandate in the first two paragraphs of the bill, but familiarizing one'self with the long history of such bills, does help to make the paragraph stand out like a flashing red warning sign:

§1100-Z. Maine New Markets Capital Investment Program

1. Findings and intent.  The Legislature finds that encouragement of investment in qualified businesses and developments located in economically distressed areas of the State and the creation and preservation of jobs are in the public interest and promote the general welfare of the State. The Legislature further finds that the enactment of incentives as set forth in this subchapter to promote investments is necessary in order to ensure the long-term economic vitality of this State, to preserve numerous opportunities for jobs for the people of the State and to make this State more competitive in the attraction of investment capital and thus to ensure the preservation and betterment of the economy of the State for the benefit of its people. The Legislature further finds that the foregoing benefits to the State and its people far exceed the costs to the State of providing the incentives set forth in this subchapter. The Legislature further finds that the provisions of this subchapter are necessary to accomplish these objectives.

The Legislature finds that the incentives offered by the State pursuant to this subchapter are intended to induce major investments in qualified businesses and developments located in economically distressed areas of the State and that any party who accepts and reasonably relies upon these inducements in making qualified investments is entitled to the full realization of these incentives without impairment by subsequent changes in law. The Legislature finds that when determining whether a project is financially feasible an investing party must rely in good faith upon the Legislature to ensure that the promised incentives of this subchapter will be available for a period of 7 years following the date of each qualified investment and that a party's confidence in the full realization of these benefits is a critical factor in inducing the party to make the desired investment. It is the intent of this Legislature that all successor Legislatures honor the commitments held out by this subchapter.

[ 2011, c. 380, Pt. Q, §1 (NEW); 2011, c. 380, Pt. Q, §7 (AFF) .]

Really all you need to catch this warning sign is an understanding of human character. This is the first piece if legislation which I have come across that includes an ethical lecture on why one must honor the arrangement. Shouldn't this be a signal in and of its self  ?

This bill is written in the voice of the Maine legislature but we have been told by the media that the legal firm for Cate Street Capital wrote the bill.- thus justifying Mr Johnson's statement that "only the people that benefit from them actually understand it" being that as we are told by the source which we are told both the economists and legislature rely upon for digging deeply into things, that it is in fact the party that benefits from the bill who is responsible for writing the bill. Apparently the legislature only lent that party the use of their voice- and so we are getting an inside glimpse into how those much heralded "public-private relationships" written into Maine statutes, ad infinum , actually work. The economists and the legislature are only just learning about the bill from the media. Are U 4 REAL?  Mr Johnson ?

Well Thak you Mr Richardson for writing and getting published  the article Pay Day at The Mill. Until now I always thought that the Maine media got their script instructions from the Maine legislature !

I have wittnessed in online comments and discussions that the story line which releases the Maine legislature from repsonsibility for this bill is having some success with the public. Even Mr Richardson spun this idea into his story. The Maine legislature are being portrayed as simple rural folk- which is meme code for "honest"  and "worthy" !. The Maine legislature are as much victims as anyone else- don't blame them ! I was even in a debate on The Maine Citizen with another poster who held that the Maine legislature cannot be held responsible for their actions because they are not being paid very much. I do not know what they are being paid but such a rational is indicative of the culture which the Maine legislature has created in their ongoing mission to mandate pay at all levels of society and thus removing the relationship between productivity and responsibility from the exchange between a wage earner and the wage he earns. At what level in this new rationing system does the wage earner become responsible for anything ? Wages are being treated as entitlements handed out by the Corproation of Maine.  And what kind of insanity holds that an ethical and responsible character is something that can be purchased  only if the price is right !

If the public buys the line that the legislature are not repsonsible but merely victims then maybe there will be no new birth of a new political paradigm in Maine- one that calls for a ban on refundable tax credits for starters and one in which the Maine taxpayers stop authorizing bonds sold as "job creation" which actually authorize the redistribution of wealth from taxpaywers pockets to the bank accounts of the new owners of the means of production. That's the hidden agenda behind the story line promoting the concept that we cannot hold our legislature responsible for the effects of their actions.

YES WE CAN !