Gov. Harry Hughes, who has actively courted the state's business community for three years, has a dilemma.
He is caught in the middle of a debate between liberal legislators and conservative business leaders over whether the state should go along with a new federal tax law that would enable corporations to speed up their tax deductions for equipment that depreciates.
If the legislature approves "decoupling"--jargon for the process of the state's breaking away from federal tax law--Maryland would continue to collect as much as several hundreds of millions of dollars in corporate taxes over the next five years, some of it earmarked for badly needed transportation projects. And Hughes, because his endorsement is key to passage of the bill, would be applauded for striking another vestige of Reaganomics from his Democratic state.
But if he opposes decoupling, Hughes will win approval from business leaders who say the tax deductions are necessary to enhance the "psychological" climate for industry in Maryland and to weaken the impression that the state is antibusiness.
The need to choose between business and consumer is not new for Hughes. For the past few months, the 55-year-old governor has deftly clung to an image as a fiscal conservative and social liberal, criticizing President Reagan for harsh budget cuts in human service programs while at the same time endorsing banking deregulation. During the past week he has continued to play both sides of the economic issue, announcing a series of economic programs that simultaneously have pleased the lending industry and advocates of better housing for the poor.
But like the banking deregulation controversy, which aroused all the political energies of the powerful banking lobby, the debate over decoupling has generated a tremendous lobbying effort by business.
For 90 minutes yesterday Hughes huddled in his second floor office with seven business leaders, including representatives of the Chamber of Commerce and Black and Decker manufacturing, the two groups that have orchestrated the latest political blitzkrieg. Although he made no firm pledges, he agreed to appoint one business leader and several members of the state bar and accountants assocations to convene on Monday with his fiscal advisers to review options. He is expected to make a final decison next week.
Part of the problem is that this is an election year, when issues that are not necessarily related somehow become linked.
For months Hughes has pressed the legislature to approve a higher gasoline tax to finance many of the same roads and bridges now financed through corporate taxes. Although business leaders have argued that there is no correlation between decoupling and the gas tax, Baltimore Del. Dennis McCoy said today he could not vote for the gas tax without a guarantee that the corporate loopholes would be closed. An amendment to the gas tax bill, that would have made passage of the measure contingent on decoupling, failed in the House Ways and Means Committee today. But McCoy's sentiments were loudly aired.
"I can't imagine supporting a gas tax and then letting the corporations get away with these advantages," said Del. Lucille Maurer (D-Montgomery), who voted today in favor of the gas tax bill despite her concerns. Maurer and several other legislators said the governor appears willing to support decoupling from another federal corporate tax law called "safe harbor leasing," which is not as controversial in the business community nor as important financially to the state.