Defining down 'rich' won't save Maryland's budget

$100,000 is the new $1 million in the not-so-free state

May 22, 2012|Marta H. Mossburg

Plastic surgery and Botox made 40 the new 30. In this month's special session of the General Assembly, Maryland's Democratic legislators made $100,000 the new $1 million.

Unlike doctors and pharmaceuticals, however, members of the state's majority party can't defy reality. Worse, they are not willing to learn from their mistakes.

Just five years ago, only people who made $1 million or more per year were labeled rich by elected officials, who crafted a special tax just for them.

At the time, Senate President Thomas V. Mike Miller said of the millionaire's tax and others that bumped government's take by more than $1 billion, "The state is going to be very well positioned for the next few years."

But it wasn't. Despite higher income, sales, corporate and other taxes and fees, the state couldn't shake annual billion-dollar budget deficits and will face them again in coming years. The millionaire's tax was a particular flop, bringing in about one-third of anticipated revenue before it expired.

Like sociopaths incapable of self-reflection, members of the majority party decided to try a new version of the same old policy by defining rich down to those who make $100,000 in the state tax code this year.

They are not alone. President Barack Obama and Democrats at the national level want to raise taxes on those who make $250,000 or more per year in the name of fairness. The facts — that high marginal tax rates always fail to achieve predicted revenue, and that there are not enough millionaires or fractional millionaires to remotely impact the national debt — are not stopping them. Prioritizing fairness only means higher taxes for all, however, as the government needs to find new sources of money.

So watch out, people making $50,000. It's not just the Lexus-driving, lululemon-wearing Montgomery County moms who might have to start to pumice their own heels to make tax payments. It's you, the doctor who just graduated from medical school with debt payments the size of a mortgage who will have to tighten your belt for the good of all. It's you, the single parent in Baltimore who sacrifices everything to send your two children to parochial school. It's you, the 20-something wife who lives with your in-laws because you and your husband can't afford a house in Howard County, where you work.

Below that income threshold, the state will rapidly bump into the growing group of partially and fully subsidized people living in Maryland. At that point, legislators can either raise taxes again with the same results, or try what many states around the country have been doing in recent years: compete for business. This year, Kansas cut top income tax rates and eliminated nonwage income taxes for 191,000 businesses. Oklahoma, Nebraska and New York are some of the other states where legislators are cutting taxes or proposing to cut them. Nine states have no income tax and somehow manage to pay their bills.

As economist Stephen Moore, co-author of "Rich States, Poor States," said Friday at a Maryland Public Policy Institute forum, high marginal tax rates like Maryland's are one of the biggest predictors of poor economic performance. Maryland is an anomaly because of the large presence of the federal government, but looming federal spending cuts and a hostile tax climate are harbingers of fewer jobs and a shrinking tax base.

If this is what "forward" — President Obama's new campaign slogan and a favorite catchphrase of Gov. Martin O'Malley — looks like at the state level, everyone should want to go "backward." As Mr. Moore said of the tax hikes in the special session, "How in the world does destroying jobs … help anyone?"

The California economic model Maryland so ardently follows is bankrupt. Without a major tax policy shift, Maryland will follow the same path and has already been losing people to outmigration, like its philosophical mother ship. Looking back in five or 10 years, the irony will be that fairness could be so cruel and unfair to so many.

Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her email is marta@martamossburg.com.

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