In 1987, Maryland launched its "one and only" tax amnesty holiday for those who hadn't paid their state taxes. Shockingly, in 2001 it happened again, and yesterday Gov. Martin O'Malley and others were in Dundalk touting Maryland's third such effort in 22 years.
What do all three events have in common? Here's a clue: It's all in the timing. At the time of each, Maryland was in the throes of an economic downturn, and elected officials desperately needed the cash to help balance a state budget awash in red ink.
This year's effort may prove to be the most desperate yet. Unlike in 2001, the General Assembly approved the amnesty last spring without giving the state comptroller's office any money to manage, advertise or market it. And that's one reason why even the legislature's own analysts are assuming it will raise about $10 million compared with nearly four times that amount eight years ago.
Tax amnesty is not necessarily a bad policy, at least not in moderation. It demonstrates compassion for individuals and small companies that sometimes fall behind in their obligations and lack the money to make things right, particularly when times are so bad.
And there's no question that the state needs the money right now. Mr. O'Malley and his colleagues on the Board of Public Works cut more than $700 million from the state budget last month, and state employees are being forced to take more unpaid furlough days. Spending on higher education, health care, social services and other business of state government has been slashed, and the worst may still be to come.
Under the new holiday's provisions, tax scofflaws will have between now and the end of next month to sign on to the program and pay off a variety of back taxes, from income to sales. In return, they'll suffer no penalties and be responsible for paying just half the interest normally due. Some will even be able to stretch out their payments until the end of next year.
Ultimately, this should result in more tax revenue for the state not only in the short term but also in the long term, as taxpayers who catch up with their obligations tend to stay caught up.
But there's a trade-off. Offer amnesty too often and even the most dutiful of taxpayers is bound to wonder: Why pay on time when others are getting away so easily? It can make tax law look negotiable, to put it mildly, and more people will be attracted to the proverbial "audit lottery," deliberately holding out on the chance that Comptroller Peter Franchot and his minions will not find them before the next holiday.
Admittedly, tax scofflaws will still face the risk of prosecution after Oct. 30 and, armed with a new computer system, the comptroller's office is in the process of increasing enforcement efforts. Holding a holiday once every eight years is not exactly frequent, but who can say for sure? State officials have never investigated what the optimal interval between holidays might be.
What is clear is that Maryland's latest amnesty is guided almost exclusively by a desire to bolster the shrinking state budget. That's not a bad goal, particularly at a time when education, health and public safety budgets are under fire, but it's not the ideal way to set a thoughtful and productive tax policy.
