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Every state has its problems, but we're especially glad this month that
we don't live in Maryland, where Governor Martin O'Malley has been
undertaking something close to a tax-increase-a-day tour.
In Ellicott City he proposed raising the sales tax to a rate of 6% from
a nickel. The next day in suburban Baltimore he unveiled his plan to
raise the top income tax rate to 6.5% from 4.75%. Last Wednesday in
Landover he called for a doubling of the cigarette tax to $2 a pack. He
has also endorsed a one percentage point hike in the state corporate
income tax to 8%, new commercial real estate taxes, and a 12 cent hike
in the gasoline tax to 35.5 cents a gallon. The Tax Foundation says
Maryland already has the 23rd highest tax burden among the 50 states,
but the Governor seems to be aiming for the top 10.
In all, Mr. O'Malley hopes to wrench $2 billion a year from Maryland
workers - in the name of filling a $1.5 billion gap in the state's $30
billion budget. The extra $500 million will finance new spending. "This
is the biggest tax increase in Maryland history, by far," says
Christopher Summers, president of the Maryland Public Policy Institute.
But like a dentist with a drill in his hand, Mr. O'Malley says this
won't hurt a bit.
He claims his "reforms" will reduce the tax burden on 95% of state
taxpayers, thanks to a lower tax rate on incomes below $15,000 and some
tax credits. But of course everyone will pay the higher sales tax,
unless they decide to shop in neighboring Delaware, which has no sales
levy.
Mr. O'Malley's income tax plan is consistent with the Democratic Party's
nationwide revival of its New Deal theme of the tax code as a tool for
income redistribution. While nations over the globe move to flatter,
simpler, pro-growth tax systems, the Governor is selling his proposal as
a pain-free whack at the rich.
Trouble is, there aren't enough truly rich to finance his spending
goals, so his real target is the not-so-upper middle class. His two new
tax brackets of 6% and 6.5% will kick in at incomes of $200,000 and
$500,000, respectively, for couples. We doubt many families in suburbs
like Bethesda or Towson think an income of $200,000 makes them "rich."
The Governor also fails to mention that about two-thirds of the people
he wants to hammer are small business owners - the major employers in
the state. He might acquaint himself with a new study by Barry Poulson
of the University of Colorado which finds that states with either no
income tax, or low flat-rate structures, have significantly higher
income growth rates than states with steeply progressive tax rates.
It's a testament to Maryland's spendthrift ways that Mr. O'Malley is
doing this in the sixth year of a national economic expansion. Most
states have budget surpluses, and two years ago under Republican
Governor Robert Ehrlich even Annapolis was $1 billion in the black. But
state spending has since exploded by nearly 18%, according to figures
from the Maryland Taxpayers Association. Maryland spends $11,000 per
student in the public schools, and $13,000 in the woeful Baltimore
school district. In five years the legislature has fattened school
budgets by 59%, yet Mr. O'Malley and the education lobby are claiming
poverty if taxes aren't raised.
Mr. O'Malley's fellow Democrats dominate the Legislature, so there isn't
much doubt most of this will pass. The losers will be Maryland citizens,
unless they move to another state, which we'd guess some of them will.
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