Maryland’s New Tax Triple Crown

November 13, 2007

Rates on Wages, Corporate Income and General Sales to Rise at Once, with Tobacco, Cars and Hotels Thrown in for Good Measure

The Preakness may be in danger, but Maryland has a new type of triple crown. We can’t find any record of any state government’s having raised every one of its major taxes at the same time. Maryland is about to do just that, and its legislators haven’t sugar-coated the tax pill (or bill) they’re sending their constituents.

Every Marylander will soon be paying higher taxes, despite Governor O’Malley’s promise that the vast majority of Marylanders would pay less. The governor has his alibi, though. He did send two tax cut proposals to the legislature, provisions that critics might call a fig leaf, but they would have been noticeable had the legislature not discarded them.

There is some public virtue, albeit of the hair shirt variety, in raising everyone’s taxes without buying off any constituencies. It’s more honest. The usual political strategy is to ensure the presence of vocal champions with targeted tax cuts. The mix of tax hikes and cuts also puts reporters in a bind: it’s awkward for them to call the total package a “tax increase” because some people do pay less, so they end up using “tax reform” which sounds so much better.

Governor O’Malley followed the traditional strategy, offering a $90 annual tax cut to homeowners for each $100,000 of home value, plus a low-end income tax rate cut that would have saved the average couple about $150 per year. The legislature summarily dispensed with them, and they will not be mentioned again.

Here’s a regional comparison of how the three versions of the tax hike would affect Maryland’s standing. O’Malley and the legislature deserve thank-you notes from all the surrounding states, as Maryland will look worse in both sales and corporate tax comparisons.

In wage tax comparisons, Maryland has essentially given up the idea of competing. No matter which version of the tax hike prevails, every Maryland wage earner will continue to pay the region’s highest tax rate. For high-income earners, depending on which of the three top rates is enacted, there will probably be no more than five comparable states with a higher tax: New Jersey, Vermont, Rhode Island, Iowa and California.

The usual populist, tax-the-rich rhetoric that gets aired during every tax debate focused on Montgomery County, not only from the Baltimore Sun, which we commented on, but in even nastier tones from Montgomery’s home town Washington Post.


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