T o deal with Maryland’s $1.5 billion deficit, Gov. Martin O’Malley wants to increase taxes on just about everything, including personal and corporate income, sales, services, tobacco, gasoline, vehicle titles, you name it. The $2 billion in new taxes he’s proposed doesn’t cover the $137 million needed to satisfy requirements of the 2002 Thornton education funding law, as the governor promised to do during the 2006 campaign.
The basic flaw in O’Malley’s tax increase proposal is that it assumes Marylanders don’t pay high enough taxes to support our politicians at the level to which they would like to become accustomed. Politicians long ago became accustomed to spending too much. That’s why it isn’t even remotely credible to suggest that a $200 million cut in a $2 billion annual budget is somehow draconian.
But spending cuts are an issue for another day. For now, let’s focus on the impact of O’Malley’s tax hike on Maryland’s economy. The governor needs to look at the map. Steve Entin, president of the Institute for Research on the Economics of Taxation, says studies show people and businesses can move elsewhere fairly easily when the tax and regulatory burden gets too heavy where they are.
“You have to worry about chasing people out of your state,” Entin says. That’s what happened, for example, when Massachusetts tried to tax its way out of a similar overspending problem several years ago. Many companies just picked up and moved to New Hampshire, taking their jobs and their tax payments with them. All those new homes being built just across the line in Pennsylvania and the Marylanders buying them suggests it can easily happen here, too.
Maryland already is less business-friendly than its next-door neighbors. The Tax Foundation ranks Maryland 29th in “business climate” — way behind Delaware (ninth), Virginia (13th) and even trailing Pennsylvania (22nd). Marylanders also have the 16th-highest tax burden in the nation. “Tax Freedom Day” — the date on which taxpayers finally get to keep their own earnings — doesn’t come until May 1 in the Old Line State. It will be even later if O’Malley has his way.
Slapping new taxes on accounting and legal firms, car repair and beauty shops, real estate agents and appraisers, or any of the other service and professional businesses that have helped make Maryland the wealthiest state in the nation is a particularly bad idea, according to the National Federation of Independent Business, which warns state legislators that small firms here will be the hardest hit. So, when are the politicians in Annapolis going to start taking some real hits for a change?
