Martin O’Malley’s “Biggest Loser”

September 21, 2007

With all due respect to NBC’s smash-success TV show, it’s time to play

Biggset loser

Hosted by Maryland Governor Martin O’Malley

Who stands to lose the most* if Governor O’Malley’s tax changes are enacted? It’s a picture of someone who probably looks fairly familiar to you. He or she:

– is not married

– has no dependent children

– rents an apartment or home

– has a good-paying job or strong income

– smokes

– often goes out to eat or orders in

– enjoys going shopping

– owns or leases a vehicle

– is a member of a gym

– goes to the tanning salon

In short, he or she is a pretty typical 20- or 30-something Marylander. He or she might be a government worker who commutes into Washington or a young doctor, nurse or researcher at Johns Hopkins in Baltimore.

It could just as easily, though, represent a widower or an older, busy professional who doesn’t have the time to deal with owning and maintaining a home.

O’Malley’s tax proposal either increases tax on or provides no relief for all of the characteristics of the hypothetical individual above. The O’Malley tax plan offers the greatest benefits to married, home-owning families, with children, that make under $200,000 per year. However, the savings realized by a household that doesn’t share the first three traits shown above (single, no kids, renting) may be more than offset by the tax increases on the bottom six traits (from smoking to tanning).

Let’s assume that a family of four earning $75,000 per year spends $30,000 on sales-taxable goods and services. That family will face a sales tax increase of over $300 per year – and that’s assuming that no one in the household smokes. Under the governor’s plan, the same family would only save $176 on its income tax bill. The property tax reduction would likely add another $50 in savings to that (which, as the Baltimore Sun points out, is “a night at the movies — with a small popcorn split four ways”). In sum, this family is still paying at least $75 more in taxes per year.

And that says nothing of the yet-to-be-announced increase in Maryland’s corporate tax rate.

Even if a Marylander falls into O’Malley’s tax-favored categories (married, with children, homeowner, nonsmoker), this plan may still be an overall loser for them. Higher business taxation causes businesses to shrink or flee. One study indicated that nearly 11,000 Maryland jobs could be lost by 2012 as a result of the new tax plan.

That has a lot to do with competitiveness. Raising taxes will always make a state less competitive against other states with lower tax rates. Maryland should pursue policies that lower taxation rates if they want to build a comparative advantage against competing states. This increase would drop Maryland’s business tax climate ranking even lower than the bottom half position it holds today. At least nine states would move ahead of Maryland under O’Malley’s increase.

The overarching point is that Maryland’s families need to look closely at their employers, spending, activities and lifestyles before they decide whether or not the governor’s plan is really a good deal for them.

It may turn out that many of Maryland’s families fall on the wrong side of The Biggest Losers’ giant scales.

* In the most extreme case, the “biggest” loser under the O’Malley plan would be a very high-income, unmarried renter without children who smokes. But there are many more folks who fit the former description than fit the latter.


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