State Budgets: Maryland Tax Increases Can’t Keep Up With Spending Increases

December 29, 2008

In early 2008, Maryland raised just about every state tax to raise $976 million to fund additional spending and close a “structural” budget shortfall (the current budget is $827 million larger than the previous budget, or a 4.16% spending increase). Officials now estimate a $415 million shortfall this year and $1.9 billion next year, assuming spending grows at 0.7%. Most alarmingly, revenue from the 2008 tax increases (particularly on high income earners and cigarettes) is running 44% under projection, suggesting a loss of economic activity from the increases. O’Malley has conceded that he may have to scale back his plans for new education and health care programs (including health coverage for the uninsured and Chesapeake Bay cleanup) and end a tuition freeze at Maryland universities.

In the fall, O’Malley put a referendum on the ballot to authorize state-owned slot machines and pulled a Washington Monument stunt, warning that unless it passed, he would have to cut funding for disabled caregivers, reduce hours at the Baltimore Zoo, eliminate helicopter search-and-rescue efforts, and fire 283 police officers. The referendum passed, but apparently the $700 million annually it was projected to generate isn’t enough. Meanwhile, Democratic legislative leaders are advising O’Malley to keep spending growth under 2.5% and to cut 1,000 state jobs.

More on Maryland here.

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