The battle over Reaganomics formally began in the General Assembly today when legislators began considering the administration's new corporate tax laws.
One of the state's leading labor organizations charged that those laws will result in a windfall for businesses that will cost Maryland more than $350 million in lost tax revenues by 1986.
The organization's attack was countered by the business community, which applauded Reagan's tax cuts as needed stimulation for the economy and asked for more breaks for corporations.
In Maryland and in more than 20 other states, state tax law is modeled on federal tax law. The result is that most changes enacted by Congress last summer will go into effect in Maryland unless the legislature votes to change the law.
Although the sentiments of business and labor leaders were clear, the mood of the legislators was not. Some Democrats are trying to piece together a new tax package to challenge the new laws, but they say their chances of passage are slim in an election year. Recently the legislature enacted a number of laws favorable to business, and several liberal legislators said they expect a pro-business attitude to prevail during this session. Legislators also worried that the precise impact of the federal tax law will remain unclear because there are so many variables in the economy.
"I don't think we should go along with it the federal law because it certainly helps the wealthy," said Sen. Julian L. Lapides (D.-Baltimore), a member of the Senate Budget and Tax Committee, which held a public hearing today on the tax issues. "But in this climate we would be hard put to change it."
Echoing labor leaders around the country, Thomas M. Bradley, president of the state branch of the AFL-CIO, urged the Senate committee to reject the Reagan tax plan. He said that if the tax system takes effect in Maryland, the state will have to make up for lost corporate tax revenues by decreasing services or raising taxes. "There is nothing in this law that says the money saved by corporations has to be invested in a new plant or new equipment or to create jobs," he said.
The most significant change created by the Reagan system comes from a provision that allows corporations to depreciate their assets more quickly than under previous law, thus lowering their taxable income. The change is of particular consequence in Maryland, where more than half of the state's corporate tax revenues are put into the transportation trust fund, which pays for the state's roads and bridges. According to state projections, this fund would lose roughly $105 million by 1986 because of new Reagan tax measures.
"The system amounts to a rapid and arbitrary system of write-offs which totally destroys the concept of business income for tax purposes," Bradley told the senators. "It's like taking the concept of taxation based on ability to pay, and stuffing it into the saddlebags of federal budget director David Stockman's Trojan Horse."
The argument over the federal corporate tax laws represents a classic split between business and labor organizations. The business community argues that the tax write-offs will improve the economy and create jobs. Business leaders say the state can expect to receive higher sales and income tax revenues that would offset losses from lower corporate taxes. They say that with higher employment, the state would have to pay out less in welfare and unemployment benefits.
Harry Pogash, a spokesman for the state Chamber of Commerce and a vice president of Black and Decker, a large power tool company, said the state should maintain the federal corporate tax law to ensure that companies such as his continue to do business here. And he lobbied for another tax measure to stimulate business -- so-called urban enterprise zones -- that has not been approved yet at the federal level.
"The stakes are high," Pogash said. "There is a real battle for business among states."
He and several Republican legislators conceded, however, that Maryland will suffer initial losses from the corporate tax plan and that states will only begin to benefit when the Reagan administration's economic program succeeds. Administration officials have projected an improvement in the economy by next summer or fall.