Many experts, many perspectives on potential burden of tax measure

Plan's impact considered in light of national trends

General Assembly

March 27, 2004|By Michael Dresser | Michael Dresser,SUN STAFF

The revenue package passed by the House of Delegates this week could hurt Maryland's tax-burden ranking among the states but wouldn't make it the "tax hell" some critics predict, according to a respected research group.

The state now ranks roughly in the middle of the pack in terms of state and local tax burden, according to the Washington-based Tax Foundation. William Ahern, spokesman for the group, said the net $670 million increase proposed by House Speaker Michael E. Busch could push it up to about 15th if other states hold their rates stable.

Ahern said the Busch package would raise the state's tax burden by about three-tenths of a percentage point. However, he said, so many states are bunched up around Maryland's current rate of 9.5 percent that even a relatively minor increase in the tax burden can mean a big jump in rank.

Busch's proposed increase - his answer to the problem of funding the Thornton education aid formula - would leave Maryland well behind some of the highest-taxing states, Ahern said. Last year, 13 states had rates above 10 percent, led by the District of Columbia at 12.9 percent and Maine at 12.2 percent.

Under the proposal, which was passed by the House, Maryland would move to the top of the middle tier of states with tax burdens between 9 percent and 10 percent.

"If enacted, Maryland still wouldn't be a tax hell, but you'd be getting warm," he said.

The phrase "tax hell" has been a touchy subject in Maryland for more than a decade. In 1994, in an article that still sets some Maryland budget officials' teeth on edge, Money magazine hung that label on Maryland as part of a ranking of the states.

The magazine corrected its assertion after Maryland officials questioned the methodology, but the state's reputation as a den of infernal taxation has lingered - especially in conservative political circles.

"This state is descending into a tax hell with no exit," Harford County Republican Del. Susan K. McComas thundered during debate over the Busch package Wednesday. For House Minority Whip Anthony J. O'Donnell of Calvert County, Busch's proposal was nothing short of "apocalyptic."

Whether Maryland is now a high-tax state, or would be if Busch's proposals were to become law, is largely a matter of how one looks at the question.

Steve Hill, director of the Institute for Budget and Tax Policy, looks at Maryland and sees a low-tax state with plenty of room to raise revenue before temperatures become uncomfortable. "Overall, in all taxes we rank in the bottom third," Hill said.

Steve Walter, who advised Republican gubernatorial candidate Ellen R. Sauerbrey during her two campaigns, sees a state that ranks near the top in per-capita tax burden. "Over time it leads to a migration of people and business and employment," the Loyola College of Maryland economics professor said.

Measured by the Tax Foundation as a percentage of income, Maryland's state and local tax burden in 2003 ranked 27th in the country.

Ahern said that if other states raise their taxes this year - a strong possibility because many face similar budget problems - Maryland could remain closer to the middle even if Busch's proposal were to prevail.

If Maryland were to jettison Busch's proposed taxes and adopt Gov. Robert L. Ehrlich Jr.'s proposal to legalize slot machines, it is by no means clear it would keep its present ranking. Scott A. Hodge, president of the Tax Foundation, said that a state's take from gambling is classified in some cases as taxation.

Thus, the roughly $800 million in estimated revenue from the Ehrlich-backed Senate slots bill could have roughly the same effect on the foundation ranking as Busch's tax proposal. Hodge added that if the state owned the slots facilities - an idea floated by Busch - it would probably be counted as other revenue and not as taxes.

That anomaly points up the fact that the mix of taxes is just as important as a state's total tax burden.

Maryland ranks high in some measures of taxation - most visibly the state income tax rate - and quite low in others.

Smokers, for instance, have good reason to see Maryland as a high-tax state. They're paying one of the higher cigarette taxes in the country at $1 a pack. Beer drinkers have nothing to cry in their suds about. The state's beer tax is one of the nation's lowest, and proposals to raise it are going nowhere.

In terms of the sales tax, Maryland now ranks relatively low at 5 percent. The centerpiece of Busch's proposal to fund education is a sales tax increase that Democrats describe as a penny on the dollar and Republicans as a 20 percent jump. (Both are correct; it's a matter of political packaging.)

Busch's plan would raise Maryland's sales tax to the same 6 percent level as in Pennsylvania, West Virginia and New Jersey and make it slightly higher than the District of Columbia's 5.75 percent.

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