Why BIW should pay no taxes at all

General Dynamics, the Virginia-based defense contractor that owns Bath Iron Works, is asking the residents of Bath for yet another massive tax break. The world’s fourth-largest manufacturer of war machines, which reported revenues of $31.5 billion last year, apparently can’t afford to build a new facility or upgrade some of its existing operations unless the citizens of that small seaside city agree to let it keep some of the taxes it would otherwise have to contribute to its community.

To call General Dynamics’ request outrageous would be an understatement, but the English language only goes so far. Beyond using words like “outrage” and “abomination,” one can only spit in disgust. Given that Maine politicians seem to be in a competition to see who can heap more praise and public money on BIW, a more accurate term for General Dynamics’ request would be “slam dunk.”

The latest tax break General Dynamics is seeking would be the third so-called “tax increment financing” arrangement applied to its operations in Bath. TIFs return a percentage of the additional property tax revenue generated by new development or redevelopment back to the business paying for the improvements. However, the word “percentage” can be misleading. In some cases, the percentage is 100 percent — i.e., all the additional property taxes are returned to the developer.

The first TIF district created for one of BIW’s facilities works this way. Begun in 1999, it gives back to General Dynamics all of the new property tax revenue the city would otherwise collect (and half of the additional personal property taxes due) through the year 2024. A second TIF district created in 1999, which covers land occupied by the original shipyard site, allows General Dynamics to pay only half of the new taxes its investment in that part of its operations would normally require it to fork over during the same period.

It’s been estimated that those two TIFs will siphon about $85 million from the city of Bath’s coffers and into the bank accounts of General Dynamics’ shareholders, executives and employees over the quarter-century term of the deals. That sum is almost six times the amount of the municipality’s annual budget. But when it comes to government giveaways to General Dynamics, that’s far from the half of it.

As detailed in court documents associated with an unsuccessful citizen-initiated attempt in the late 1990s to repeal BIW’s sweetheart deals, General Dynamics also benefits from a unique form of corporate welfare that allows it to keep up to $60 million of the employment taxes it collects from BIW employees over a period of 20 years. On top of that, the state business-and-equipment-tax program reimburses BIW for taxes on equipment and other property that it pays to the city of Bath. The value of that tax break over a 12-year period was estimated at the time to be $53 million.

Of course, there are yet more tax breaks and loopholes General Dynamics benefits from on the state, national and international levels. And let’s not forget that most of the money it makes comes courtesy of American taxpayers (the rest comes from foreign governments, some of whom may someday turn those weapons on us or our friends).

The justification General Dynamics executives have offered in this latest bid for a handout would be laughable if it didn’t provoke tears of rage. They complain that the Navy recently ordered nine more destroyers, but BIW will only get to build four of them (the other five will be built in Mississippi by BIW’s lone domestic competitor in this field, Ingalls Shipbuilding). The value of BIW’s contract: a paltry $2.84 billion.

One could blame the Navy for not ordering an even number of ships to keep both spoiled defense brats happy, but it’s quite possible BIW will get to build a fifth ship if Congress adds funding next year.

I’d like to offer General Dynamics an even better property tax deal: no property taxes whatsoever, ever. That’s the rate applied to other military facilities, like naval bases. Why should the sites where our navy’s ships are built be taxed differently than their destinations?

Our Constitution says the feds shall “provide for the common defense,” which they do, directly, by paying soldiers and building military installations. But weaponry is purchased indirectly, through gigantic private conglomerates that have their bills padded by profit margins necessary to keep Wall Street investors happy. Nationalizing the manufacture of weapons used for the national defense would take much of the profit out of war profiteering, saving taxpayers untold billions. We’re hardly taxing these contractors anyway, so why not make them tax-exempt arms of the government?

Does this sound like a good idea to you, or am I just spitting in the wind?

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Chris Busby

About Chris Busby

Chris Busby is editor and publisher of The Bollard, a monthly magazine about Portland. He writes a weekly column for the BDN.