Each year, Maryland gives a tax break to ski resorts that make fake snow. And to country clubs and golf courses for preserving open space. People who buy large amounts of precious metals or who resell pricey boats get a break.
With Maryland facing a record budget shortfall that could top $1.3 billion next year, some groups say the state can no longer afford such tax giveaways. Worried about cuts in state services and jobs, union officials and social service advocates are highlighting what they call corporate welfare.
At a news conference in Annapolis yesterday, Progressive Maryland, a nonprofit alliance of unions and advocacy groups, released a report titled "Looting the Treasury" that detailed 52 tax breaks in the state's Tax Expenditure Report totaling at least $421 million a year.
The tax code is "riddled with giveaways to special-interest campaign contributors" that should be eliminated before cutting programs, said Sean Dobson, who compiled the report for the group.
Across the country, two-thirds of the states are reporting declining revenue, and more than half face budget shortfalls this year, so lawmakers in many states are searching for ways to close growing budget gaps. Earlier this year, New Jersey and Alabama passed significant reforms aimed at closing loopholes in their corporate tax codes. Several other states, including Maryland, have set up commissions to evaluate revenue-raising options.
But in Maryland, Republican Gov.-elect Robert L. Ehrlich Jr. says he believes that businesses already are overtaxed. He campaigned on a pro-business platform, and a spokesman said that efforts to reform the tax code will get "some consideration, but not much."
"This runs in complete conflict with Governor Ehrlich's vision for the state," said spokesman Henry P. Fawell. "Raising taxes will do nothing to attract business."
One person's corporate welfare is another's economic development incentive, and the state's business community is prepared to fight efforts to repeal corporate breaks.
Michael Powell, a lobbyist for the Maryland Chamber of Commerce, said that in many cases, breaks were put in place to ensure that Maryland remains competitive with nearby states. One break totaling $117 million a year benefits the state's manufacturing sector.
"If ending it means you lose all your industry to Pennsylvania and Virginia, you haven't achieved anything," Powell said.
Among Progressive Maryland's findings:
Maryland's utilities and telecommunications companies receive breaks totaling millions a year. Companies that send junk mail to other states get a break that costs the state $3 million a year in lost revenue. The state's sales tax doesn't apply to goods sold to cemeteries, certain used automobile parts or baking equipment worth more than $2,000.
To end those exemptions over Ehrlich's objections, Democrats would have to present a united front to make any pertinent legislation veto-proof, and that's unlikely to happen, according to Matthew Crenson, a Johns Hopkins University political science professor. He pointed out that Democrats voted to put the breaks in place and that many of the party's legislative leaders were swept from office in the November election.
Still, some are willing to try. In Maryland's House of Delegates, newly installed Speaker Michael E. Busch (D) said yesterday that lawmakers should take a serious look at closing loopholes to avoid "looking to revenue sources that depend on gimmickry, like legalizing slots," one of Erhlich's top priorities.
In the other chamber, state Sen. Brian E. Frosh (D-Montgomery) says he plans to reintroduce a bill aimed at ending a tax shelter he estimates costs state and county governments well over $40 million a year in lost revenue.
Most homeowners have to pay a transfer and recordation tax when they buy or sell property. But increasingly, businesses are evading those taxes by buying property in the name of a corporation or limited liability company. Then, instead of selling the property, they sell the corporation. In 1994, for instance, Montgomery Mall was sold for $175 million. The state and county lost out on $3.5 million in taxes, Frosh said.
"People can come in with any kind of half-baked scheme that you should do this for economic development, and you have a bunch of suckers who will go along with it," he added.
But reforming the tax code, Frosh and others acknowledge, would be politically difficult. Many of the industries that benefit are prolific donors to state campaigns and hire the best lobbyists to protect their profits.
Former state senator Laurence Levitan is one. As a lobbyist, he has represented utility companies and other businesses that receive tax breaks, and he sits on a special commission appointed by outgoing Gov. Parris N. Glendening (D) to study the state's budget situation. The commission is expected to release a report this month with options for raising revenue.
Levitan said he doesn't mind if some of the breaks he's managed to enact wind up on the commission's laundry list. "They just can't be selected!" he joked. One he'll fight to keep: a property tax break given to country clubs and golf courses in the name of preserving open space.
Houses surrounding golf courses are more valuable "so you get more taxes that way," he argued.
Lawmakers can be equally protective. House Majority Leader Maggie L. McIntosh (D-Baltimore) said that while some tax breaks deserve a hard look, others, such as the break given to ski resorts, are defensible. She said that helps Wisp Snow and Ski Resort in Garrett County, a poor county that can least afford to lose a major employer.
But Del. Elizabeth Bobo (D-Howard) had a different take.
"I have no problem giving assistance to businesses that need it," she said. "But when we give breaks to businesses at peak or close to peak profits, then that I believe is simply unjust."