Maryland Revenue Falls Short Despite (or Because of?) Huge Tax Hikes

September 16, 2008

We’ve reported exhaustively on Maryland’s self-destructive decision to raise essentially every state tax. Previously, the state Comptroller’s office had estimated that adding higher state income tax brackets would raise $504 million in Fiscal Year 2009; increasing the sales tax by one percentage point would add an additional $377 million; and the $1 hike in cigarette taxes would net an additional $74 million. All told, the state was expected $976 million more for its budget.

Wrong, wrong, and wrong. Newly revised estimates issued by the Comptroller’s office put the income tax revenue increase at $369 million (36% short), the sales tax increase at $112 million (70% short), and the cigarette tax increase at $57 million (23% short). Instead of $976 million, the tax hikes are now estimated to bring in only $544 million, a 44% shortfall.

An op-ed in the Baltimore Sun has some insight:

The only factor keeping the state economy afloat is our geographical position next to Washington, D.C.

Economic history has shown that if you raise taxes, you do increase revenue for a time – but you stifle economic growth.

More on Maryland here.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.