No new taxes. Whew. That?s the good news about the recently completed General Assembly session. But they, like Arnold Schwarzenegger in “Terminator,” will be back.
The reason: Legislators failed to cut spending to match incoming revenue and to make any structural reforms to the state?s education and medical programs, two of its biggest expenses. That means the state will face at least a $1.5 billion deficit in its next budget and bigger ones in the future if spending continues to outpace revenue as forecast. But taxes must not be the answer.
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Economic forecasts may show Maryland gaining thousands of jobs from BRAC and continued low unemployment, but the predictions are no reason to assume the state can absorb higher taxes without hurting the economy.
Maryland does not exist in a vacuum and is not recession-proof as some would like to believe. According to the 1998 Maryland Legislative Handbook, “The recession of the early 1990s was longer and deeper in Maryland than for the U.S. in total as it was concentrated in sectors that are particularly important to the State?s economy, such as government, defense-related industries, and financial institutions. The end of the Cold War and the concomitant downsizing of the defense industry put further pressure on Maryland?seconomy. While the U.S. lost 1.6 percent of payroll employment between July 1990 and March 1991, Maryland?s job loss continued through September 1992. Overall, Maryland lost 109,700 jobs (peak to trough), equivalent to 5 percent of its workforce.”
Fast forward to 2007. A different war ? one many people in the state vehemently oppose ? fuels our economy. When it ends, so could the boom times, making proposals like the one to expand sales taxes to services like tax return preparation, consulting and engineering, is particularly short-sighted. It would immediately make doing business in Maryland more expensive, not to mention more confusing. For example, what happens if a client of an engineering firm is based in Maryland but the project is in Virginia? Should it be taxed?
Legislators may hope Maryland?s economy will grow despite any changes to military spending. But hope must never be the basis for sound fiscal policy. Unfortunately the myriad tax proposals ? the Maryland Society of Accountants identified more than 50 being considered last session ? demonstrate legislators? irrational belief in uninterrupted growth. They would be well served to review recent history and re-read that 1998 handbook before they return to session. It will show cutting spending and increasing efficiency is the only prudent way to ensure taxpayers and businesses have the tools to thrive whatever the economic conditions.
