Tax loopholes cost state $162 million, study says

Group claims code favors corporations, the wealthy

September 29, 2004|By Andrew A. Green | Andrew A. Green,SUN STAFF

Claiming Maryland's tax code is full of "fiscal wet kisses" for corporations and the wealthy, an advocacy group issued a report yesterday identifying 28 exemptions that it says cost the state $162 million a year with scant public benefit.

The report by Progressive Maryland - an umbrella group of labor unions, churches and other organizations - says the state loses $34.8 million a year by exempting health maintenance organizations from paying taxes on their premiums, $15.4 million from credits compensating utilities and telecommunications companies for local property tax increases, and $650,000 for letting country clubs claim "open space" property tax status.

"These ludicrous and unfair tax giveaways should be abolished," the report says. "How can we cut health care for poor kids while subsidizing country clubs? How can we hike `user fees' on ordinary folks while throwing taxpayer dollars at ... corporate giants that export Maryland's jobs abroad?"

The report arrives as state agencies are scouring their budgets to identify potential cuts of up to 12 percent in an effort to solve Maryland's long-term structural deficit.

The state has to fill a budget gap of about $400 million next year, but spending after that is expected to create hundreds of millions more in annual shortfalls because of growing Medicaid costs and increased education funding, said Warren Descheneaux, the legislature's top budget analyst.

Last year, the state moved to close some tax loopholes, such as those allowing companies to avoid Maryland taxes through the use of Delaware holding companies. But Gov. Robert L. Ehrlich Jr. sees the state's long-term budget problems as the product of too much spending, not a lack of taxes, his spokesman, Henry Fawell, said.

"This is a group that favors new and higher taxes, and the governor has repeatedly said he is not going to tax his way out of the budget deficit he inherited," Fawell said. "He believes it is government's responsibility to restore fiscal discipline and not pass the responsibility on to the private sector or private citizens."

Ehrlich would not comment on individual exemptions the group mentioned unless they become the subject of legislation, Fawell added.

Progressive Maryland released a similar scorecard two years ago, pointing to 58 tax loopholes totaling $421 million a year. Sean Dobson, the author of both reports, said the difference is a change in the group's criteria, not legislative action to end the exemptions.

Dobson said the group would work with lawmakers in an effort to eliminate "the most egregious" exemptions.

The report says that some exemptions were probably good-faith efforts to provide economic incentives, but others are "payola to deep-pocketed campaign contributors." To remedy the problem, the group suggests Maryland adopt a public campaign financing system similar to those in Arizona and Maine.

Kenneth R. Mayer, a political science professor at the University of Wisconsin who has examined the systems in those two states, said elections there have become more competitive, but no studies yet show whether politicians are less influenced by special interests.

"It seems to me you can make a pretty strong case that if you do have a competitive electoral system, most of the other problems will take care of themselves," Mayer said.

To read the full Progressive Maryland report, go to www.baltimoresun.com/taxreport.

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