In Greek mythology, Hercules performs twelve monumental labors to atone for past sins. Faced with the prospect of completing a Maryland tax return, however, even he might just accept purgatory.
As a resident of Maryland, I recently filled out my state tax return, which required the consultation of an instruction booklet comprising 34 pages of very small font. The reason: Maryland has several dozen tax credits and exemptions that individuals or businesses can claim.
In fiscal year 2016, such tax breaks cost the state $5 billion, more than the state collected in sales taxes. Such carveouts are a boon to those who take advantage of them, but their cost forces the state to raise tax rates so the government is not starved of funds.
According to the Tax Foundation, Maryland residents bear the seventh-highest tax load in the United States, with a burden just shy of 11 percent. (The highest-taxed group were New Yorkers, coming in at 13 percent.) A Thumbtack survey gave the state’s business tax friendliness a grade of “D.” For those of us who cannot exploit the Swiss cheese-esque state tax code for our own benefit, it is worth knowing what, precisely, our tax dollars implicitly support.
Here are some of the most outrageous tax breaks in the Maryland state code.
Film Tax Credit. Film production companies may claim a tax credit equivalent to 25 percent of their production costs for work done in the state. This credit is refundable, meaning if the amount of the credit exceeds a film company’s tax burden, the state will actually pay them money to shoot in Maryland.
According to a report by the Maryland Department of Legislative Services, the credit cost the state $63 million over five years—97 percent of which went to just two television shows, House of Cards and Veep. The report calculated that each dollar spent on the film tax credit returns just 6 cents in revenue to the state government. Taxpayers, of course, are on the hook for the other 94 cents.
Aquaculture Oyster Float Credit. Maryland residents may get up to $500 off their income tax bill if they purchase an aquaculture oyster float, a device used for raising oysters domestically. One Maryland vendor proudly advertises the credit on its website, claiming that customers can get 100 percent money back if they purchase the $500 float.
The problem is, of course, that taxpayers are footing the bill for all those oyster floats—to the tune of some $500,000 over four years. Not only do such generous subsidies cost the state government money, they distort the market by raising the price of oyster floats. A comparable float in sold in Virginia, which does not have a tax credit, costs only $195—less than half of the cost in Maryland. After all, consumers are perfectly willing to accept higher prices when someone else is paying.
Maryland-Mined Coal Tax Credit. Maryland provides a credit of $3 per ton for coal mined in the state. (For comparison, a ton of bituminous coal costs around $60.) The credit, which has cost the state $15.6 million over four years, is scheduled to be phased out by 2021.
Assuming the legislature follows through on its promise, the phase-out is a welcome change. There is no reason to subsidize Maryland coal when outside sources of coal are readily available. Maryland accounts for just 0.2 percent of U.S. coal production, and the industry employs only 400 people in the state. Furthermore, the productivity of Maryland’s coal mines is well below U.S. averages, according to the Energy Information Administration.
Maryland ought to focus on industries where it has an advantage, such as defense, education, and medicine. There is no reason to subsidize the domestic production of a commodity that can easily be imported from Pennsylvania or Kentucky.
Oyster Shell Recycling Tax Credit. K Street lobbyists could learn a thing or two from oysters, given how many tax breaks these savvy bivalves receive. Individuals and businesses can receive a credit of $5 per bushel of oyster shells they recycle, up to 150 bushels. The program has cost roughly $300,000 since its inception in 2013.
Ironically, this may be the most-justifiable tax break of anything on this list. Oyster shells are used to restore the oyster population of the depleted Chesapeake Bay, since young oysters can use the old shells to survive. Oysters filter polluted water, meaning large oyster populations have environmental benefits. And since restaurants simply discard unrecycled oyster shells, there is no market here for the subsidy to distort.
Tax breaks for particular industries give some businesses a leg up over others. Moreover, higher taxes on everyone else are necessary to finance such subsidies. As Tax Day approaches, Maryland legislators might want to take a hard look at whether many of these credits are really worth it.
Preston Cooper is a Policy Analyst at the Manhattan Institute. You can follow him on Twitter here.
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