Make corporations pay fair share

August 30, 2007|By Lisa Gladden and Paul G. Pinsky

Some people still ask, "Does Maryland need to raise new revenue?" Among many elected leaders, budget experts and people who recognize the state's needs, it's a settled question. Maryland not only has to balance its budget as the law requires - and as every household does - but it also needs to address improving our schools, providing affordable health insurance to those unable or barely able to afford it, and cleaning up the Chesapeake Bay.

But how do we meet these needs? Who will pay?

Recently, a report showed that nearly half of the largest corporations doing business in Maryland paid no corporate taxes. These companies - many making hundreds of millions of dollars from selling their products and services to Marylanders - give nothing back to the state even though they benefit from state services.

Not paying taxes isn't an option for average Marylanders. Taxes are part of the social compact that establishes good government and is fundamental to a democratic community. In return, people receive state roads, schools, police, environmental enforcement and Medicaid for long-term elder care, to name a few.

So, why do so many corporations not make their contribution?

Sure, there's a state corporate income tax of 7 percent. But many of the largest companies hire tax lawyers and accountants with one simple instruction: "Find us a way to avoid paying taxes." And so far, they've been pretty successful. Although 68 of the largest for-profit corporations paid $145 million in taxes in 2005, the other 64 of the top 132 companies contributed nothing.

Sadly, besides costing the state revenue, this practice puts many Maryland-based companies at a major competitive disadvantage: The larger, multistate, tax-avoiding companies lower their prices and undersell Maryland companies.

Last year, Wal-Mart was caught writing off "rent" for its Maryland stores by sending it to another company subsidiary based in Delaware. "Profit" instantly becomes a "loss." Money is transferred to a shell company in another state, while in the end the money still goes to the same parent corporation.

And this is only one tax-avoidance scheme. From 1980 through projected 2008 returns, the corporate share of Maryland income taxes will have dropped from 10.3 percent to 7.8 percent. When these corporations don't pay their fair share, the rest of us end up paying more.

There are solutions to this mess. Twenty-one states, including California, Illinois, New York and Michigan, have adopted "combined reporting," a tax law that restricts many of the tax-avoidance schemes used by big companies.

Another fair solution: making the state's personal income tax more progressive so those who make more pay a higher tax rate. In Maryland, there's basically one tax rate for everyone making more than $3,000.

Many states across the country have built progressive systems: one rate for middle-income families (say, those families making $80,000 combined), another for those over $150,000, another for those making more than $500,000, and so on. Those better able to afford taxes should contribute more.

There are plenty of other ways to raise revenue as well. One is a windfall profits tax on energy companies. Baltimore Gas and Electric Co. and the big oil companies continue to make money hand over fist while regular citizens suffer from higher rates. Maybe tax fairness should be extended to the energy crisis as well.

We should encourage a broad discussion over not only how we spend our money but also how we raise it. It's time that we set common-sense priorities in deciding where Maryland invests for the future and, just as important, how the state gets there.

State Sen. Lisa Gladden represents Baltimore and state Sen. Paul G. Pinsky represents Prince George's County. Their e-mails are lisa.gladden@senate.state.md.us and paul.pinsky@senate.state.md.us.

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