Maryland bucking the trend

Nationally, many states are pursuing a strategy of public disinvestment in order for conservative politicians to demonstrate their opposition to taxes. Some states, like Michigan, New Jersey, Indiana, and Tennessee, are enacting rash and irresponsible tax cuts.    Other states are attempting to go much farther

Some state legislators are proposing to eliminate whole taxes, cutting state revenues by 30 or 40 or 50 percent. Georgia, Kansas and Oklahoma have considered proposals to abolish their state income taxes. North Dakota voters defeated a proposal to eliminate their property taxes only after voters rejected it in referendum.

Governing Magazine’s Penelope Lemov recently interviewed the (progressive) Center on Budget and Policy Priorities’ Nick Johnson and the (conservative) Tax Foundation’s Joe Henchman about this trend. (Disclosure: the Center on Budget and Policy priorities is a major national coalition partner with the Maryland Budget and Tax Policy Institute).

Johnson and Henchman both pointed out that the cuts needed to offset such large revenue reductions can be very harmful to a state.

Henchman: “Depending on what you cut, you will have an economic effect. If you cut education, that might make your state less competitive. There are trade-offs.”

Johnson: “A state could end up with much higher sales taxes and excise taxes, much higher local taxes and larger class sizes, fewer teachers, libraries and cops on the street, and less availability of health care. It's magical economic thinking -- this idea that there's a free lunch to be had.”

So, there’s broad agreement that our taxes do pay for something valuable.

In contrast to the national tax-cut fever, Maryland’s legislature used a balanced approach to balancing the budget this year, including fair and moderate tax increases. It preserved funding for the functions important to our state’s economy and quality of life. Our elected representatives did the obvious and responsible thing.  Yet in doing so, they were bucking the national trend.

 At the same time, we have further evidence to disprove one of the common bogeyman of the anti-tax brigade.  Jeffrey Thompson at UMASS’ Political Economy Research Institute has compiled a very thorough, balanced and readable survey of the research on the economic effects of state taxes on high income taxpayers. The result? “Modest tax increases on high-income households are unlikely to make substantial changes in their work effort or entrepreneurship or make them more likely to leave the state.” There may be more tax-sheltering behavior, particularly among the top 1/10 of 1 percent.

Professor Thompson concludes “The benefits of sustaining appropriate levels of funding on K-12 and public higher education, public safety, and transportation should be weighed against these consequences – as opposed to unsubstantiated fears that the rich will flee a state en masse or shut down their businesses.”

In Maryland, our leaders made these responsible choices. We need to maintain our support for education and our other shared public assets so we have a strong future with growing prosperity that’s broadly shared.