At start of session, Governor signals a balanced approach to balancing the budget

Governor O’Malley signaled his intention to adopt a balanced approach to balancing the budget this morning at the annual Annapolis Summit hosted by the Marc Steiner Show and the Baltimore Business Journal.  In addition to supporting raising the gas tax and flush tax, he indicated his support for raising the sales tax by one percentage point as his preferred solution to the structural deficit in the state’s operating budget. His comments are a good indication of what his budget will include, but we still have to wait until next Wednesday for the complete package.

After years of job-killing cuts, the Governor’s sales tax proposal is a good way to begin a conversation about rebalancing the budget.  The legislature can improve on it. A sales tax increase will have a disproportionately negative effect on lower income families. This is because low-income and working families need to spend a larger share of their incomes on taxable goods compared with more affluent households. Increases in gas taxes and the “flush tax” to help Bay water quality will also hit low-income and working families the hardest. These increases should be paired with increased refundable tax credits for low and moderate income earners.

Unfortunately, increasing the sales tax will not be sufficient to protect the vital services that Marylanders depend on and that this state needs to prosper into the future.  The legislature and the governor need to also look at developing other new revenues sources, including closing loopholes for multi-state corporations, reinstating the millionaire’s tax, and modernizing the sales tax to include services.

Happy session! 

The Millionaire Migration Myth

There’s been a lot of talk lately about the supposed effects of reinstating Maryland’s millionaire tax, as the Governor tries to figure out how to plug the $1 billion budget deficit in next year's budget. Some opponents are still stuck repeating the myth that millionaires will flee the state in droves (even though analysis of tax returns during the previous millionaire's tax of 2008-2010 shows that isn’t true). Others argue that Maryland’s overall tax structure is pushing high-earners out. One wonders how to reconcile this with the fact that Maryland continues to have the highest concentration of millionaires in the country? In fact, the tax return analysis linked above shows that Maryland added 3,118 millionaires to the tax rolls in 2008 and 2009, almost four times as many as those who died or left the state during the same period.

In reality, migration is uncommon at all income levels, and mostly driven by non-tax factors. Instead, most households move for three reasons: to find cheaper housing, to take advantage of job opportunities, and to move to a better climate. While we can’t control the weather, the governor and General Assembly should push a budget and legislation that promotes affordable housing and better jobs. This will require new sources of revenue, of which the millionaire’s tax should be a part.

The bottom line is that when Maryland raises taxes it gains significant revenue for schools, transportation, public safety, and all the other services and amenities that create jobs, strengthen our economy, and make Maryland an attractive place to raise a family.