Government benefit or fraud? The Treasurer, the tree tax and the submerged state

Bruce Poliquin has been an unusually visible Treasurer for Maine, frequently in the news for his criticisms of various state programs and funding issues.  A 2010 candidate for Governor — he came in sixth in a seven-person primary field with just under 5% of the vote — there’s been considerable chatter about his future political ambitions.

A recent issue involving the Treasurer has been framed as potential fraud. I don’t know the law well enough to determine if fraud was committed.

However, should we assume there was no fraud, that does not mean there is nothing of interest here.

In some ways, a lack of fraud would reveal a situation that’s truly important as a matter of broad public policy, affecting far more people and far more dollars, via a type of government benefit program that is relatively invisible.

The facts of the case involve Mr. Poliquin paying reduced property taxes after “enrolling the majority of his 12-acre oceanfront property in the state’s tree growth tax relief program.”

A spectre of fraud revolves around the possibility that Mr. Poliquin received a tax break that was not legitimate.  As the Bangor Daily News explains:

The 40-year-old program provides landowners with a property tax abatement if they agree to adopt sustainable timber-harvesting practices on their land. [By enrolling in the program], he reduced the assessed value of his property from about $1.75 million to $725,000 and saved $5,000 annually in property taxes.

And, as Maine Public Broadcasting notes:

The law clearly states that property under tree growth must be maintained with the goal of producing commercial forest products, a use that appears contradictory to the restrictions in Poliquin’s deed. . . A 2009 study by the Maine Forest Service cited Poliquin’s property as an example of potential misuse of the tree-growth law.

If the approximately $50,000 in tax reduction that Poliquin received was not fraudulent, it still matters. In fact, this illustrates a large but generally overlooked kind of benefit — tax expenditures.

People who receive this kind of benefit, who may be supportive or critical of benefits that are directly delivered to citizens (such as SNAP/food stamps or Medicaid or unemployment insurance) may not even recognize these as government income transfers.

As political scientist Suzanne Mettler explains, the use of policies from what she calls “the ‘submerged state,’ is largely invisible because its benefits are channeled through the tax code and subsidies to private organizations. These include the home-mortgage-interest deduction and the exemption from taxes on employer-provided health and retirement benefits. Using “submerged” benefits is nearly as common as using more visible policies.”

Submerged state policies involve huge amounts of money that is transferred from tax receipts to particular individuals.  And, as the chart below shows (source) people who receive them often don’t believe they are receiving a government benefit.

Percentage of people who didn't think they used government programs and then admitted using this government program.

Mettler reports that, in a 2008 survey, “94 percent of those who had denied using programs had benefited from at least one; the average respondent had used four.”

The least recognized submerged state programs benefit people who are at least middle-class, if not upper income.  When coming in the form of tax expenditures, they “give people and businesses special tax credits, deductions, exclusions, exemptions, deferrals, and preferential rates in support of various government policies.” (source)

Tax expenditures don’t look like spending and are often the subject of intense lobbying. They don’t tend to be subject to the same politics surrounding “welfare” benefits that serve the poor, in which it’s commonly said that the people receiving the benefit don’t deserve them or that the government entity can’t afford to keep spending for that benefit.

Bruce Poliquin got a government subsidy in the form of a tax expenditure. This is how he came to pay $30.53 in tax on “10 acres of prime oceanfront land.” (source)

And so, although it’s an open question whether Bruce Poliquin’s tree tax reduction was legal or fraudulent, if it was the former, he managed to gain a rather substantial, if hidden, government benefit. Surely these submerged state policies deserve greater scrutiny.

Amy Fried

About Amy Fried

Amy Fried loves Maine's sense of community and the wonderful mix of culture and outdoor recreation. She loves politics in three ways: as an analytical political scientist, a devoted political junkie and a citizen who believes politics matters for people's lives. Fried is Professor of Political Science at the University of Maine. Her views do not reflect those of her employer or any group to which she belongs.