Why they're killing us with taxes

Dennis R. McGrath

March 27, 1992|By Dennis R. McGrath

THE MARYLAND State Teachers Association, which wants to see Marylanders pay higher taxes, has found an interesting argument. They say that "Maryland's state and local revenues declined from 16.7 percent to 15.1 percent of personal income during the 1980s."

Yet it is also a fact that state revenues increased by 132 percent -- more than doubled -- during the same period, rising much faster than inflation. What is going on here?

Like most debates involving statistics, nobody is really lying to you. But one side is using your own assumptions to mislead you. You probably assume that "personal income" is a good measure of how much money people can afford to spend on things. But that is not true.

Let's take the example of a family 20 years ago in which one spouse worked and the household income was $20,000. The state got its share of that in income taxes and also in sales taxes.

Let's say that after a few years the other spouse was forced to go to work. That spouse might earn $20,000, too, but is the wealth of the family doubled? No. Because the second spouse went to work, the family now has more expenses -- a second car and more car repair bills, day care, more meals that have to be eaten away from home and so on.

The state gets the same share of the family's income through income taxes. But since that family now has to buy more services (which are not taxed in Maryland), they can't use the second paycheck to buy as many goods, which are taxed. Thus the percentage of the family's income that the state gets through the sales tax falls, even though the total tax revenue from that family has increased. The state is getting more money, but it's getting a smaller percentage of "personal income."

Think of the family as a business. Maryland families have increased their production and sold more of their "product" (their labor). They have done this by lowering their "profit margin" (the percentage of earnings they get to spend on themselves). But the state is not satisfied with taxing the families on their profit; it also wants the same percentage of "gross receipts" -- or personal income -- that it used to get. Such a tax policy applied to the business world would destroy many good businesses. If applied to Maryland families many of those will be destroyed, too.

Fortunately, the important facts are also simple ones. In 1989 Maryland state and local governments took money that amounted to $2,901 for every Marylander. Pennsylvania governments took $550 less from their citizens. Marylanders paid more local and state taxes per capita than citizens in 39 of the other 50 states. But for the politicians and their allies that is not enough. For them no amount will ever be enough.

Government has gotten so big now that it has its own momentum. Too many people get too many things from government and they need the money of Maryland's families to keep it that way. People on the take from the government are generally good people. But like all people their reason is connected to their self-love, that is, it is easy for them to believe flawed arguments, like the one about personal income, if the argument means they will have more job security.

At this stage, there is only one way to stop the continued growth of government: Just "say no" to new taxes and to any politician who votes for them. Even when the argument sounds plausible, remember that many intelligent people have an interest in making new taxes sound good because government is too big already.

The writer is a professor of government and public administration at the University of Baltimore.

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