We Can’t Tax Our Way To Economic Growth

The lights had barely gone out on the Annapolis special session, called to increase income taxes, when the Department of Labor jobs numbers came out for April. It reported that Maryland led the nation in job losses, dropping by 6,000. Is there a connection to government policy? You bet.

As taxes are raised in Maryland, businesses and private-sector jobs are collateral damage. About 81,000 Maryland businesses are organized as Subchapter S corporations and are taxed at personal income-tax rates. Faced with an unanticipated personal income-tax increase, many of these businesses will be unable to hire or may even have to reduce their current workforce. This is insanity in a state that needs to create nearly 150,000 additional jobs just to return to pre-recessionary levels.

The personal income tax is a major factor for business retention and relocation decisions. CEOs understand that locating in Maryland will subject their own personal salary to one of the highest tax burdens in the country. After comparing the 9 percent top personal income-tax rate in Maryland with 5.75 percent in Virginia, major business leaders have chosen Virginia.

High-profile companies, including Hilton Worldwide, SAIC, Volkswagen North America and Computer Sciences Corp., passed on Maryland and located in Virginia. When Maryland lost Northrop Grumman to Virginia in a hard-fought battle, Maryland Governor Martin O’Malley called it “a win for the entire Greater Washington region.” But this was no win for Maryland job seekers.

Also packing their bags and taking jobs elsewhere were Proctor & Gamble, Black & Decker and Solo Cup. Add Macy’s and Saks’ distribution centers. And a Unilever ice cream plant in Hagerstown will close its doors in July, leaving 391 employees jobless. Their jobs are being transferred to other Unilever facilities in the United States.

Leading up to the special session, conservative legislators and business groups warned that raising taxes during a stalled economy would further damage Maryland’s already tarnished business reputation.

So why would political leaders call a special legislative session for the sole purpose of raising income taxes on hard-working families and businesses? Because it is not the stalled economy that matters, it is pleasing those who benefit from government spending.

Was another tax increase needed? Absolutely not. Few taxpayers saw their incomes go up, yet between fiscal years 2011 and 2012 the Maryland state budget increased by 11.4 percent, the seventh-highest in the nation according to the National Governors Association.

For FY 2013, the governor continued record-breaking spending, proposing a $1.2 billion budget increase. During a chaotic regular legislative session legislators managed to agree to “only” a $700 million increase before adjourning in April. The Democratic leadership and most of the media defined this reduction in the rate of increase as a $500 million cut in a “doomsday” budget.

In a state that refuses to live within its means and is politically beholden to staunch government-spending advocates, the legislature was summoned back into special session to raise the revenues to fund that additional $500 million in new spending. Let’s be clear. There was never a $500 million “cut.”

Mr. O’Malley claims he has cut spending over his six years by $7.5 billion. Even those who indulge in “fuzzy” math understand that a budget that has grown from $29.6 billion to $35.9 billion on the O’Malley watch does not represent a $7.5 billion cut.

Only in government are reductions in proposed spending increases called “budget cuts.” For the “real” math, take a look at the tax increases. Sales, corporate and individual income taxes were tapped in the first year of the O’Malley administration. In subsequent years, attention turned to license plates, real estate transactions, hospitals, alcohol and birth certificates.

This year it is back to raising the individual income tax, the flush tax and fees on death certificates. All told, an additional $12 billion in added taxes and fees have been removed from the economy during Mr. O’Malley’s term in office.

According to the American Tax Foundation, the residents of Maryland are already staggering under the nation’s fourth-heaviest tax burden. But no matter how much new tax money is taken out of taxpayers’ pockets, it is never enough to close the structural deficit because Maryland’s budget just grows and grows and grows.

Meanwhile, an out-of-touch governor and legislative leaders are claiming the victory of another tax increase, but untold numbers of Maryland families and businesses will be checking out states with kinder tax climates.

Ellen R. Sauerbrey co-chairs Maryland Business for Responsive Government and is a former minority leader in the Maryland General Assembly.