Maryland Senate Approves Income Tax Hike; Sneaks in Tobacco Hike Too

May 15, 2012

This morning, we published a report on some of the taxes being proposed during Maryland's special session. The special session was called to avoid "doomsday" budget cuts that were triggered when the assembly failed to reach a revenue deal at the end of the regular session. Of course, the budget cuts were actually cuts to planned spending increases, so even if they had been allowed to take place, the budget would have grown 2 percent over last year. This is hardly a doomsday scenario.

Today, we've just received word from the Maryland statehouse that the Senate has passed the income tax increases, and also snuck in a tobacco excise tax increase. The income tax increase will mean that a family of four earning $250,000 in Montgomery county will pay almost $1,000 more in taxes each year. You can find the rate breakdown here.

Increasing taxes on high-income earners is often politically expedient, but that does not make it sound tax policy. While voters sometimes see hiking taxes on the rich as a free lunch, doing so in the long term has dynamic effects. Namely, people are not willing to work as much if they have less take-home pay. This hurts long-term growth for the entire economy, and all citizens bear that cost.

The tobacco tax hike is troubling as well. It raises taxes on "little cigars" from 15 percent to 70 percent of wholesale, and raises taxes on smokeless tobacco from 15 to 30 percent. More and more I find myself being persuaded by the moral argument against taxing tobacco at increased rates. Patrick Fleenor put it best back in 2009:

The fact that something is risky doesn't make it bad. Some people ride motorcycles and sunbathe; like smoking, these are risky activities. Are they therefore bad? No. As long as people understand the risks of what they are doing and bear all of the costs, there is no reason for the government to threaten to impoverish them if they don't live their lives in the way some bureaucrat demands.

Life in a free society requires tolerance of activities that have little or no effect on others, even those we don't personally approve of. If government or interest groups have information about risks that are not widely known, they should disseminate it. Otherwise, adults should be left alone to live their lives in accordance with their own dreams and values.

More on Maryland here.

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