Health care tax to target big employers

SSenate joins House, OKs bill that in effect applies only to Wal-Mart

Ehrlich might veto measure

Low spending on benefits would trigger penalties

General Assembly

April 06, 2005|By David Nitkin | David Nitkin,SUN STAFF

Maryland would become the first state to tax large companies that failed to meet a mandatory level of employee health-care benefits under a bill approved yesterday by the state Senate.

The measure would affect one corporation, retailing behemoth Wal-Mart Stores Inc., which sent representatives from its Bentonville, Ark., headquarters to argue against it at committee hearings this year. But other, smaller businesses worried that the measure could be altered to include them in the future.

Under the Fair Share Health Care Fund Act, for-profit companies with 10,000 or more workers would pay a levy to the state if they failed to spend 8 percent of their payroll costs on health care.

Large not-for-profit organizations such as the Johns Hopkins University would face a 6 percent payroll requirement.

The House of Delegates passed a slightly different version of the legislation last month.

The discrepancies are expected to be reconciled, after which the bill would head to Gov. Robert L. Ehrlich Jr.'s desk. Ehrlich has indicated that he would veto the measure, and proponents are pledging a veto override attempt next year if necessary.

As a practical matter, four large Maryland employers would be covered by the bill: Wal-Mart; Giant Food Inc.; Hopkins; and defense contractor Northrop Grumman. But only Wal-Mart would be required to pay the tax because it does not reach the 8 percent threshold.

The legislation was adopted after three days of intense Senate debate during which lawmakers explored whether the responsibility for health care for lower-income hourly wage earners is best borne by government or by the private sector.

Critics said it is wrong for lawmakers to target one company and require operating expenditures when such benefits could be negotiated between management and employees.

By adopting a new mandate, they said, Maryland would cement its reputation as a state unfriendly to business where liberal lawmakers trample on free-market principles.

"What we are doing is something that no other state has ever done," said Sen. E.J. Pipkin, an Eastern Shore Republican who led the fight against the legislation. "This is the most dangerous bill to job creation ... that the great state of Maryland has seen in 10 years."

Supporters said that because many Wal-Mart workers are not covered by health benefits, its employees and their children disproportionately rely on Medicaid and other government programs. As a result, they said, other tax-paying businesses are subsidizing the chain's profits.

"It's cost-shifting, ladies and gentleman," said Sen. Paul G. Pinsky, a Prince George's County Democrat. "When the state pays employers' health care, it's nothing more than corporate welfare."

With business opposition running high, Ehrlich, through a spokeswoman, has promised a veto. "In a heartbeat," said spokeswoman Shareese N. DeLeaver.

The bill passed by a veto-proof 30-16 majority in the Senate. Three Democrats, Philip C. Jimeno, James E. DeGrange Sr. and John C. Astle, all of Anne Arundel County, joined with Republicans in opposition.

The House vote fell one short of the three-fifth majority needed for an override, but proponents said some supporters missed the vote.

"This bill is going to become law," said Vincent DeMarco, president of the Maryland Citizens' Health Initiative. "We hope it's with the governor's support. His veto will be overridden."

Any override attempt would be made in the early days of next year's Assembly session.

A Wal-Mart spokesman said yesterday that the company continues to oppose the legislation, although it claims to spend 7 percent to 8 percent of its Maryland payroll on employee health benefits.

"Our nation, including large and small employers, faces a health care crisis, and unfairly targeting individual corporations as this bill clearly does is not the answer," said Nate Hurst, public and government relations manager for Wal-Mart in Arkansas.

Hurst said full- and part-time Wal-Mart employees are offered health care benefits, and that 52 percent of the company's more than 15,000 employees in Maryland are covered by health plans.

Ellen Valentino, director of the National Federation of Independent Business in Maryland, said small businesses also oppose the bill, fearing that it could affect them in the future as lawmakers consider changing the threshold for number of employees.

"The focus on health care needs to be on the search for affordability, not the expansion of government programs and the imposition of new taxes to pay for them," Valentino said.

Legislative debate captured national concern and ambivalence over Wal-Mart.

Sen. Leonard H. Teitelbaum, a Montgomery County Democrat, quoted from a Democratic staff study, prepared for a congressional committee, which concluded that the federal government subsidizes $2,100 in health care and other costs for each Wal-Mart employee annually.

"Each of us is funding this behemoth," Teitelbaum said.

Eastern Shore Sen. J. Lowell Stoltzfus, the minority leader, fretted that Wal-Mart might abandon plans to build a distribution center on the Shore, where the expected $12-an-hour jobs are highly anticipated.

Republican lawmakers noted that the bill is backed by Wal-Mart's competitors in the grocery business, namely Giant.

"No good business goes unpunished by this legislature," said Sen. Andrew P. Harris, the minority whip from Baltimore County. "And that is what this bill does."

Sun staff writer M. William Salganik contributed to this article.

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