In October, the non-partisan Tax Foundation released
the 2009 version of its State Business Tax Climate
Index. The Index is a valuable tool for lawmakers, the
media and individuals alike to compare how their
states' tax systems stack up. The Tax Foundation's
reports help identify changes to state tax systems that
will improve their standing in relation to competing
states.
The news for Maryland is grim.
In the space of just one year, Maryland
dropped 21 places from a middling 24th
to the fifth worst state in the country.
No other State has experienced as significant a
decrease in competitiveness ours.
The second "biggest" decliner, Indiana, moved just
three places-from 11th to 14th.
According to the Foundation: "Maryland lawmakers
achieved this remarkable feat by raising most of the
state's major taxes for FY 2009.
O'Malley and his cronies raised the corporate income
tax rate to 8.25% from 7%, the sales tax rate to 6%
from 5%, and the cigarette excise tax to $2.00 from
$1.00 per pack. They also created four new income
tax brackets, raising taxes on filers earning more than
$150,000 per year. Maryland's top personal income
tax rate is now 6.25% (up from 4.75%); that is on top
of a weighted average local option rate of 2.98%.
Maryland now has by far the worst personal income
tax in the country, with a significantly lower score than
second-place California." (Moreover, of course, our
Montgomery County "piggy back" tax rate of 3.2% is
the highest in the state.)
Our neighboring states are far more competitive.
Virginia ranks 15th and Delaware 10th.
If you listen closely, you can hear the sucking sound
on the other side of the American Legion Bridge, as
Virginia draws jobs, spending and higher income
taxpayers across the Potomac. If you are skeptical,
consider the most recent tax receipts for Maryland and
Virginia.
According to an analysis by O'Malley Watch, a
Maryland state government watchdog organization,
Virginia income tax receipts are up 5.6%, without a tax
increase. Yet, Maryland income tax receipts are up
only 5.3%, even after raising income tax rates.
Despite a 20% increase in Maryland's sales tax rate,
revenue is up only 3.1%. Virginia receipts are down
too, but a comparison of the two suggests that fully
10% of Maryland sales tax activity has already moved
out of the state.
If there a lesson to all this, it is that elections matter.
The defeat of Bob Ehrlich in the 2006 and the failure
of the Republicans in the Senate to pick up the seats
necessary to filibuster the Democratic tax increase
paved the way for this sorry state of affairs.
Republicans successfully blocked tax increases
passed by the House of Delegate while Ehrlich was
Governor. Once he was gone, there was no holding
back the Democrats. Therefore, every time you pay
higher sales tax, higher income tax - remember that
you are paying for them because of the 2006 election
results.
Is there any hope? The passage of Montgomery
County Question B may provide some. Before, seven
of nine council members must vote to increase the
property tax beyond the rate of inflatijon. The new
charter Amendment will now require all nine council
members must vote unanimously for an increase.
Maybe even in Montgomery voters have become tired
of being treated like an ATM for state and local
government.
We will see what this leads to in 2010. However, it will
take an reinvigorated Republican Party to lead the
charge on behalf of economic sanity.
