After the 2014 Legislative Session: More Work to Do

While the General Assembly should be commended for taking several steps to improve the lives of working Marylanders and their families, it also  enacted some potentially harmful policies and left a pile of unfinished business that should be  on the agenda for the 2015 session.

Though lawmakers helped strengthen working families by boosting the state’s minimum wage and expanding the Earned Income Tax Credit, they failed to take another crucial step:  requiring employers to provide earned sick leave. Allowing employees to take time off to tend to health matters would improve public health and benefit Maryland’s economy, and should be a priority in the 2015 legislative session.

Lawmakers also failed to pass other smart policies that would have made the state’s government more efficient, saved taxpayer dollars, and benefited Marylanders. This includes legislation  that would automatically enroll individuals in Medicaid if they are eligible  for the federal Supplemental Nutrition Assistance  Program (SNAP) or  if their children are eligible for Medicaid,  which would have expanded health coverage while reducing bureaucracy. The General Assembly also failed to  act on the Healthy Maryland Initiative, which would raise money to expand access to health care through a $1 increase in the cigarette tax. Advocates are already hard at work to enact this legislation in the 2015 legislative session, and lawmakers should adopt this approach that has proven to be effective in the past.

Another piece of unfinished business is  the Law Enforcement Trust Act, which would have curbed the lengthy state and local detention of suspected unauthorized immigrants who committed traffic violations and other minor infractions, helping to restore trust between immigrant communities and law enforcement and saving valuable local law enforcement resources. Governor O’Malley recently ended the practice of honoring ICE detainers at the state-run Baltimore Detention Center, but lawmakers should do the same for the numerous local detention centers across Maryland. 

The 2015 legislative session is also an opportunity for lawmakers to enact a corporate accounting change, known as combined reporting, that will close a loophole that allows large, multistate corporations to avoid paying their fare share in state taxes.

On the other side of the ledger, lawmakers  took several  steps in the wrong direction that ought to be reversed next session. The most egregious was a law to cut the estate tax for millionaires. Doing so deprives the state of revenue  when we can least afford it. Cutting the estate tax also increases income inequality at a time when inherited wealth is on the rise.  In an especially galling twist, the legislation  would eventually allow  the level of wealth that is exempt from taxation to rise with inflation. Lawmakers did so even as they refused to allow the minimum wage to rise with inflation This should alarm anyone concerned about the outsized influence of the wealthy on lawmakers and policy.

Lawmakers also need to revisit several other shortcomings in the minimum wage increase, including a freeze on the sub-minimum wage for tipped workers and the creation of a “training wage” loophole that will allow employers to pay workers under age 20 less than the minimum wage.

While state lawmakers should be proud of the important accomplishments from this year’s session, there is still more work to do to foster broad prosperity in Maryland. Check back here as we provide research, analysis, and commentary on these issues. The 2014 session may be over, but the task of making Maryland’s economy and government work for all residents continues.

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Note: As Maryland's state government is preparing to start a new chapter following the close of the 2014 Legislative Session and this year's elections, so too is the Maryland Center on Economic Policy. This will be our last post at this address as we prepare to launch our new web site at www.mdeconomy.org, which will also host a new and improved version of Maryland's Money Matters. So be on the lookout for an announcement about this exciting development in the coming days. 

Four Victories for Working Marylanders: The 2014 Legislative Session in Review

With the 2014 legislative session in the books, it is time to assess the General Assembly’s achievements as well as take stock of the work left undone. Today, we focus on several measures the legislature passed that will help move the needle toward broadly shared prosperity in Maryland.

1. Minimum wage increase. The General Assembly’s high-profile passage of legislation to raise the minimum wage in Maryland to $10.10 by 2018 will benefit nearly half a million workers and their families as well as boost the state’s economy (though compromises made by legislators will leave others behind). Maryland is now a leader in the nationwide effort to lift the stagnated earnings for workers, becoming the second state after Connecticut to raise the minimum wage to $10.10 per hour.

2. Expansion of tax credit for working Marylanders. Less noticed, but just as important, the expansion of Maryland’s Refundable Earned Income Tax Credit (EITC) to 28 percent of the federal credit from 25 percent will benefit over 422,000 Maryland households and lift many Marylanders out of poverty. The EITC enjoys bipartisan support because it encourages work, promotes personal responsibility, and helps struggling families get by. 

3. A budget that protects Maryland workers and businesses.  Lawmakers in Annapolis passed a $39 billion budget while minimizing deep or unnecessary cuts to important programs that benefit working Marylanders. The General Assembly began their work under the cloud of reduced revenue estimates that were cut even further in the middle of the session, so it is important to recognize their efforts to balance the budget while avoiding damage to important programs that benefit working families and businesses alike.

4. Stopping corporate tax giveaways. Success is not just about passing good legislation but also preventing harmful laws from enactment. This session, the General Assembly wisely blocked legislation that would cut taxes for large, multistate corporations (though they did pass a misguided tax cut for the top 3 percent of estates). And – though it came down to the wire – lawmakers did not allow themselves to be blackmailed into providing more film tax credits for out-of-state production companies.

The victories achieved during the 2014 legislative session will help improve the lives of Marylanders and strengthen the state economy. Of course, important work remains to foster broad prosperity in Maryland. Check back tomorrow for our discussion of the work that remains in the 2015 legislative session and beyond. 

Tax Day: What Do We Pay For, and Who Pays?

Tax Day is a good day to remind ourselves that taxes allow our state to make investments that benefit our economy and all Maryland’s residents, and that we must continue to work to make our tax code fairer.

What Do Our Taxes Pay For?

Taxes pay for important public services such as schools and health care that also help the state’s economy thrive. Residents and businesses alike depend on roads, bridges, and safe communities. Taxes make these investments possible.

Residents’ federal taxes mainly pay for national defense and major public programs such as Social Security, Medicare, Medicaid, and the Children’s Health Insurance Program. The largest items in the state budget include education, health care, transportation, and public safety.

Who Pays?

While the investments that taxes pay for play a large role in the lives of Maryland residents, the tax code itself plays an equally important role in determining who pays for these investments, and how much.

There are elements to the tax code that are beneficial for working Marylanders but others that favor the rich and well-connected. Like virtually every other state in the country, Maryland residents with moderate and low incomes pay a larger share of their incomes in taxes than do wealthy residents.

Source: Institute for Taxation and Economic Policy

Note: Data includes sources of family income for non-elderly taxpayers

In this regard, the tax code perpetuates and exacerbates inequality, which is particularly troubling as earnings for the wealthy in Maryland have increased while they have stagnated or declined for working Marylanders.

Unfortunately, the General Assembly has compounded this problem by raising the income exemption for the estate tax, allowing millionaires to withhold a higher level of income from estate tax filings. And although state lawmakers were unwilling to index the minimum wage to inflation during the 2014 legislative session, they passed legislation that has the withholding level for the millionaire estate tax eventually rise with inflation.

Thankfully, there are elements of the tax code in Maryland that benefit working families. Maryland has its own Earned Income Tax Credit (EITC) for people who work at low-wage jobs which complements the federal EITC and helps reduce inequality and lift residents out of poverty. This year, the General Assembly approved an expansion of the state EITC which will help the state’s workers keep even more of their money and further reduce poverty and inequality. This was an important victory for working Marylanders.

Maryland also employs a graduated rate income tax structure that rises with earnings, helping ensure that the wealthy pay their fair share. Maryland increased tax rates for high earners in 2012. Research shows that high-income residents do not leave a state in response to taxes (instead moving for family, job, and weather reasons. Indeed, Maryland remains the wealthiest state in terms of household income and the state with the most millionaires per capita.

Like the wealthy, large corporations operating in Maryland are not paying their fair share in taxes. Lawmakers failed to close a loophole that allows companies to avoid state taxes, and Maryland can do more to make sure its tax incentives are targeted toward moderate and low income residents that need them most.

As another Tax Day comes and goes, residents and lawmakers should be mindful that while taxes are necessary to pay for investments in Maryland’s residents and economy, there remains a need to improve the tax code so that it is fairer and promotes broad prosperity. 

A Quick Look at the Final Budget Agreement for Fiscal Year 2015

Lawmakers Restore Funds for Higher Education and Economic Development Programs, While Cutting Medicaid, Pension Investments, Some Social Services

Over the weekend, budget negotiators resolved differences in the Senate and House versions of the state budget and the General Assembly adopted the conference committee plan and passed the upcoming Fiscal Year (FY) 2015 $39.5 billion operating budget, an increase of $2.3 billion from the current fiscal 2014 budget, and budget-balancing plan.  While the General Assembly made cuts to important investments, the final agreement improves upon the most recent House version.

The legislature doubled to $200 million the Governor’s proposed $100 million cut to pension reinvestment for both the current and upcoming budget.  Lawmakers also increased the transfer of special funds by $69.4 million over the Governor’s proposed transfers and cut $59 million from spending on reserves and on interest on the state’s debt. 

However, budget negotiators restored $10 million in funding to economic development cut in the Senate plan as well as $2 million cut in the House version, and undid $9 million in higher education reductions in both plans.

Source: Conference Committee Summary Report, page 9.  MDCEP staff allocated spending to these categories.  Higher education spending includes local community college aid. 


As in the Governor’s operating budget plan, Medicaid and state aid to public schools are the two largest spending items, at $7.9 billion and $6.9 billion respectively. Another $5.8 billion pays for Higher Education.  In addition to $336 million in cash pay-as-you-go (PAYGO) capital funding, $2.4 billion of transportation capital projects are funded in the operating budget.

However, the legislature added $20.7 million in cuts to state Medicaid funds, including $10.1 from Managed Care Organizations, and $2.2 million from community alternatives to long-term care.  The Governor’s budget plan included $1.5 million in Medicaid state savings related to reduced assessment rates for the Maryland Health Insurance Plan.  The legislature added $3.2 million in state Medicaid savings, or $4.7 million in total state reductions (see pages 28-29).  These cuts will reduce dollar-for-dollar federal Medicaid funds that come to the state, so total Medicaid cuts added to the Governor’s budget are $41.4 million.  These cuts may limit access to care for Medicaid recipients just as the state has expanded Medicaid eligibility to hundreds of thousands of Marylanders in need of health coverage.

In terms of social programs, the budget includes $1.3 billion in federal Supplemental Nutrition Assistance Program benefits, formerly known as Food Stamps, and $133.4 million for Temporary Cash Assistance benefits. However, the budget cuts $5 million for foster care payments, and $3.8 million from the Temporary Disability Assistance Program (TDAP), which helps low-income, disabled Marylanders while they are awaiting approval of federal disability support.  These programs and other important work supports, like child care subsidies and job training programs, help working families and are often under-funded. 

The legislature also cut $23.8 million from the Bays 2010 Trust Fund, but $17.6 million of the reduction was a technical correction due to double-budgeted funds in the Governor’s plan. The Trust Fund specifically targets the most effective pollution control initiatives.  Given the high cost of cleaning up pollution after the fact, cuts to the Trust Fund reduce an important investment.

Source: Conference Committee Summary Report, pages 5-6


While lawmakers did not heed MDCEP’s call to fully restore the cuts Medicaid, foster care and TDAP, they did undo $8.8 million in cuts to higher education and reductions to K-12 education aid.  The legislature also restored $10 million in funding for economic development programs cut in the Senate version, including $900,000 for the Employment Advancement Right Now job training program, and $2 million cut to the Biotechnology tax credit cut in the House plan, along with $1,000,000 cut from child care subsidies in the Senate version.   

Source: Conference Committee Summary Report, pages 5-6

MDCEP will be releasing a detailed review of the adopted operating and capital budget in the next few weeks.  So be sure to visit out blog for more highlights of the FY 2015 state budget