Message from the Chairman: 

How many jobs were added in Montgomery County out of the 400,000 new jobs created in the Washington metro area in the past decade?  

In the past 10 years, Montgomery County has not created any net new jobs, at the same time the Washington metro area created 420,000 new jobs.    Although Montgomery's population - about 1 million - grew by 100,000 from 2000 to 2010, the county lost about 5,500 jobs.  According to the U.S. Bureau of Labor Statistics, in 2010 we had 441,706 jobs, 45,000 of which were in federal government. 

The DC area generated more new jobs than any other metro area in the country.  In effect, the second largest jurisdiction in the country's most economically dynamic metro area was the hole in the proverbial donut.  Maryland's statewide numbers are not any better.  From January 2001 to August 2011 our state added only 6,000 more jobs.  

Other communities may be tempted to attribute their lack job growth to the industries they depend on. For example Detroit was among the largest job losers during the decade as the result of the automobile industry.  However in the midst of the growth that Washington experienced, the only factor that differentiates Maryland and Montgomery from Virginia is our extremely hostile business environment. 

The Tax Foundation's State Business Tax Climate Index ranks Maryland 44th,  sixth from the bottom.  The Foundation's Index compares states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Our neighboring states are ranked as follows: Delaware (8th), Pennsylvania (26th), West Virginia (37th) and Virginia (12th).

Given our county and state's most recent policy initiatives, we will not be improving our ranking any time soon.

Consider Governor O'Malley's "PlanMaryland" proposal, which would allow the state to limit local growth by dramatically increasing Annapolis' land use authority in order to impose so-called "smart growth."   State zoning ideologues want to prevent families from living where they want to by restricting development to high density areas.  See http://mcgop.net/chairmans_message_planmaryland.aspx

For many employers choosing a new location, energy costs are an important consideration.  Governor O'Malley has supported a rise in almost every state resident's electric bill for the next 20 years in order to subsidize private offshore wind power producers. He would have added a surcharge on Maryland electric bills to subsidize uneconomical wind power production. Analysts told the legislature that it would have cost Maryland ratepayers an extra $3 billion over time. http://mcgop.net/chairman's_message_green_energy.aspx

How do our state business lobbyists respond? The Maryland Chamber of Commerce, Montgomery County Chamber of Commerce, the Greater Washington Board of Trade and the Greater Baltimore Committee have all lined up in support of a higher gasoline tax of at least 10 cents a gallon. Their strategy to make Maryland more competitive is to actually campaign for even higher taxes. See http://mcgop.net/chairman's_message-gas_tax_so_dumb.aspx

In Montgomery County, a fierce campaign has been launched to prevent "large box" retailers from locating more stores in the county. Spearheading the anti-Wal-Mart effort is the union representing Giant and Safeway employees, UFCW Local 1994.  Legislation being considered by the County Council would allow community groups to "negotiate" with retailers on requirements for hiring practices, operating hours and "community assistance." See:  http://mcgop.net/chairmans_message__memo_to_gas_tax.aspx

This past summer Montgomery County officials attracted national attention and gave the county a black eye during the US Open by fining the parents of a group of pre-teen kids $500 for operating a lemonade stand near the tournament without permit. See http://mcgop.net/chairmans_message_lemonade_youre_fined

The last story is all the more remarkable for these kids' family background - they are the grandchildren and great grandchildren of the CEO's of Montgomery County's largest private employers, Marriott and Lockheed Martin.  Executives across the region no doubt shook their collective heads in dismay.  If the Marriott and Augustine families have trouble opening a lemonade stand with the intent of raising money for charity, what possible reception could other businesses expect from Maryland officials?

Throughout the Washington area entrepreneurs and investors are still in the process of planning new businesses.  Can there be any doubt as that the message Montgomery and Maryland officials are sending is: "Go into business somewhere else." 

Mark Uncapher

Montgomery County Republican Chairman 

Maryland Education Spending by the Numbers

By Mark Newgent, Red Maryland

http://redmaryland.blogspot.com/

In Waiting for Superman, the documentary film on the state of America's public education system, we learn that over the last 50 years spending on education has increased exponentially, while over the same period educational outcomes remained flat.

National data clearly shows that increased education spending in does not equal increased educational achievement out.

How does this general fact play out in Maryland? Let's look at the data.

According to data from the National Center for Educational Statistics and the Maryland Department of Legislative Services, Maryland (state and counties) increased education spending by $4.2 billion (49%) since 2002 (latest data available up to fiscal year 2009). The state alone has increased education spending by $2.8 billion (97%) between 2002-2011.

While enrollment increased by 8,500 students over the last two years, from 2002-2009 enrollment in Maryland public schools decreased by two percent or nearly 17,000 students.

The massive increase in Maryland's education spending is due to the Bridge to Excellence or Thornton mandates enacted by the General Assembly in 2002. Education spending is the only program mandated by the Maryland constitution. Article VIII section 1 requires that the legislature "by Law establish throughout the State a thorough and efficient System of Free Public Schools; and shall provide by taxation, or otherwise, for their maintenance."

For years the state was subject to lawsuits from Baltimore city over inadequate education funding to meet the constitutional requirement.

In 1999 the legislature created the Commission on Education Finance, Equity, and Excellence more commonly known as the Thornton Commission because of the commission's chair Alvin Thornton, chair of Howard University's political science department. The Thornton commission recommended a comprehensive $1.3 billion increase in state aid to local schools systems over the next six years. Out of Thornton came the Bridge to Excellence law, which implemented the Thornton spending mandates-without identifying a funding source to pay for them.

As mentioned earlier the state has increased education spending by more $2 billion and the counties over $1.3 billion. Total state and county per pupil expenditures is nearly $15,000

Given that enormous amount of spending input, and the public school system's three-year perch atop Education Week's rankings, conventional wisdom tells us we should see blockbuster student output.

However, a look at the data shows Maryland taxpayers are not getting the education bang they should be expect given for the massive amount of bucks they put in to the state's education system.

A Bridge to "Basic"

The National Assessment of Educational Progress (NAEP) commonly known as the "Nation's Report Card" publishes state snap shots for subject scores for 4th and 8th grade students. Examining the average NAEP math and reading scores for Maryland's 4th and 8th graders between 2003-2011 reveals that in Maryland's education system there are serious disparities between Whites and minorities and between students eligible for the National School Lunch Program and those not eligible.

The average scale score for the NAEP 4th grade math assessment improved by six percent between 2003-2011, and the average 4th grade reading score rose five percent. The average math assessment score for Maryland eighth graders increased by nearly four percent, and by slightly over three percent on the reading assessment.

At first blush, this may seem like glowing progress. However, once you take into account the meaning of the scale scores as identified by the NAEP item maps (pp. 29 & 53 on 2011 NAEP Mathematics Report Card, and pp. 29 & 58 on 2011 NAEP Reading Report Card) the percentages don't look so impressive. For example, the six percent increase in average 4th grade math scores is still only in the Basic range two points below the cut score for the Proficient. While 4th graders average reading scores improved, the scale scores were still in the middle of the Basic range seven points below Proficient.

The results are similar for average 8th grade math scores. Although the average scores increased nearly 4 percent from 2003-2011, the average scale score of 288 remained unchanged from 2009 and placed in the Basic range, 11 points below the cut score for Proficient. Average 8th grade reading scores increased to 271 in 2011, up nine points from 2003. However, that scale score is still in the middle of the Basic range, 10 points below the cut score for Proficient.

For $4.2 billion spent, taxpayers received a return on investment of an average of 12-point increase across average scores for 4th and 8th grade reading and math. According to the 2011 NAEP state snap shot for 8th grade math, more than a quarter of Maryland's 8th graders are below Basic, 34 percent are at Basic and only 29 percent are proficient.

Part II will show that Maryland's schools' performance becomes even less impressive-given the massive amount of spending-when the data are broken down by race and income.

Be sure to check out Mark Newgent and Brian Griffith on Red Maryland Radio  http://redmaryland.blogspot.com/2011/11/red-maryland-radio-11-17-2011.html

The Maryland Public Policy Institute

 Is Cancer Screening Bad for You, and Obamacare?

Originally Published in the Herald-Mail

by Thomas A. Firey

From the Free State Foundation http://www.freestatefoundation.org

Taxing Ad Affiliate Internet Sales Would Be Maryland's Mistake

by Seth L. Cooper

In a November 14 editorial, the Baltimore Sun urged the state of Maryland to send the taxman after out-of-state retailers that do business on the Internet. Its editorial called on Maryland to rewrite state law to impose sales tax collection obligations on remote online retailers that have website ad commission sales arrangements with Maryland residents.

So-called "affiliate-nexus" sales taxes are a constitutionally dubious tax on interstate e-commerce. Current U.S. Supreme Court jurisprudence recognizes Congress as the authority to address interstate e-commerce and state taxation matters. And in practice, affiliate-nexus taxes will backfire by generating little to no revenue and by effectively eliminating web ad affiliate agreements with Maryland residents. Instead of trying to find new ways to expand its tax powers beyond its borders, Maryland should instead find more measured approaches to obtaining tax revenue. These may include ensuring businesses are in compliance with use tax requirements on goods purchased from out-of-state sellers not subject to sales tax, and considering taxing sales of digital goods on par with tangible goods.  

The occasion for the Baltimore Sun's editorial is the "Maryland Remote Sales Tax Loss Study." The study was just released by the office of Maryland Comptroller Peter Franchot. According to the study, Maryland lost "an estimated $198.4 million in sales and use tax revenue from the sale of tangible goods by remote sellers" in 2010, including "an estimated $97.2 million from e-commerce remote sales." It estimates that state revenues could increase by approximately $21 million or more annually if the Maryland legislature enacts an affiliate-nexus bill. Of course, "lost" revenue is a loaded term in this instance, since it assumes that remote online retailers are subject to Maryland's taxing jurisdiction. That estimate is also an optimistic extrapolation from New York tax revenues paid under protest and pursuant to pending litigation. Thus, the Comptroller qualified his tax revenue recovery estimate this way: "However, given that Amazon, the largest online retailer, has ended its affiliate relationships in most states with such provisions, there is no certainty of a substantial revenue increase under such a bill."

The Baltimore Sun editorial takes the Comptroller to task for his pessimism about the prospects of Maryland increasing revenue by adopting an affiliate-nexus bill. The editorial assumes that Maryland has the constitutional authority to so extend the reach of its taxing power to remote sellers. It therefore urges the Maryland legislature to aggressively assert its taxing powers extraterritorially, claiming that the state's existing tax policy is unfair and somehow subsidizes in-state brick-and-mortar retailers. The editorial also calls for aggressive taxation of remote online sellers despite acknowledging that it would have detrimental near-term effects on Maryland sales tax revenue and e-commerce.  

While the Baltimore Sun's editorial is called "Franchot's Mistake," there are plenty of reasons to think that the Baltimore Sun is mistaken.  

In the last few years, five states have adopted "affiliate-nexus" or "Amazon tax" laws that impose sales tax collection obligations on retail business that have no property, stores, or employees in the taxing state. Such legislation attaches tax collection obligations to remote online sellers that have web advertising affiliate agreements with in-state residents. Under those agreements, online affiliates typically place ad banners on their websites for goods sold by retailers like Amazon and Overstock.com. The affiliates receive a small commission when buyers click on the ads and purchase such goods.

But the U.S. Supreme Court's jurisprudence recognizes constitutional limits on statetaxation of interstate commerce. The Supreme Court has ruled that states can only impose sales and use tax collection obligations on retailers that have a sufficient "nexus" with the taxing state. Here "nexus" generally means the retailer has a "substantial physical presence" in the taxing state by virtue of its operation of retail stores or the in-state presence of employees. The Supreme Court has also ruled that the issue of state taxation of remote sellers is an issue that Congress has the ultimate power to resolve.

By treating online ad affiliates as the trigger for sales tax collection obligations, affiliate-nexus bills appear to run contrary to the standards set by the Supreme Court. Such a bold assertion of extraterritorial tax authority over interstate commerce has instead triggered a lawsuit in New York, the first state to adopt such legislation. Although New York's intermediate appellate court upheld that state's tax, the litigation is still ongoing.

Aside from the legalities, policy problems also beset affiliate-nexus bills. The editorial's claim that remote online retailers with ad affiliate agreements are being subsidized by in-state bricks-and-mortar retailers ignores the fact that remote sellers do not directly benefit from state and local services such as police, fire, utilities, and roads. Bricks-and-mortar business storefronts, particularly small businesses, can also serve as warehouses for fulfilling their own e-commercial transactions with out-of-statecustomers. Maryland businesses that sell to customers in other states need not collect and remit sales taxes to states where they have no substantial physical presence. Online remote sales can be a friend to main street businesses.

For that matter, a nexus-affiliate law would likely have deleterious effects on Maryland sales tax revenue and e-commerce. As the Comptroller's study states, "[r]eportedly over 200 companies including Overstock.com and Backcountry.com have terminated their affiliates in one or more states that have enacted affiliate-nexus laws." Should Maryland adopt an affiliate-nexus law, state residents who place ad banners for remote retailers on their websites would also find their ad affiliate agreements cancelled. And in such instances the state would lose its trigger for imposing sales tax collection obligations on online remote sellers.

The Baltimore Sun editorial also acknowledges that a Maryland affiliate-nexus tax would have harmful consequences. But strangely enough, it still urges legislative action, writing:

"In the short term, such an aggressive effort by the state (assuming the industry responds in its customary fashion) could actually cost Maryland not only millions in sales tax collections but put Maryland-based affiliates out of business. That's regrettable. But unless states are willing to take such harsh steps, it's unlikely this grossly unfair situation is going to change."

Just because no immediate Congressional action regarding interstate e-commerce and state taxation is expected doesn't mean that rash extraterritorial exercises ofstate taxing power are a good idea, especially given the likely negative consequences of a nexus-affiliate law. There are also close-to-home measures that the state can take to shore up its tax revenue shortfalls. Yet the Baltimore Sun editorial overlooks a couple other tax policy reforms that do not call for Maryland to engage in interstate tax aggression.

First, the state can make more earnest efforts to enforce its use tax revenue from Maryland businesses. The Comptroller's report points to the state of Washington's estimated 77% voluntary use tax compliance rate in 2006. Maryland could take steps to ascertain how high its own business use tax compliance level is and follow up with additional measures to boost that rate further.

Second, Maryland's legislature can bring digital goods within the scope of its sales tax, giving digital goods tax parity with tangible goods. As the Comptroller's report explains:

Maryland can choose to make the sale of digital goods taxable. If that were done, sellers would still have to have nexus with the State. Since digital goods are not currently subject to the Maryland sales and use tax, sales of digital goods do not lead to foregone revenues in the same sense as the remote sales of tangible goods.

Digitally downloaded computer software is currently taxed by 33 of 46 states that have sales taxes, and at least 24 states tax sales of digital books, music, and movies. The Comptroller estimated that if Maryland were to subject digital goods to sales tax, "revenues could increase by an estimated $4.7 million in fiscal year 2013." That may not cover the Comptroller's estimate of $91 million in "lost" tax revenue from remote e-commerce, or his estimate of $79 million from e-commerce transactions that are business-to-customer. But remember: calling such revenue "lost" assumes the dubious proposition that remote online retailers are subject to Maryland's taxing jurisdiction.

Affiliate-nexus sales taxes won't guarantee Maryland any significant increase in tax revenue, whether one feels the state is entitled to it or not. It will, however, guarantee that web ad affiliate agreements with Maryland residents will come to an abrupt end. And any Maryland affiliate-nexus law could be halted and overturned by the courts. Unless or until Congress acts, Maryland should consider alternative tax reform proposals that don't involve extraterritorial tax adventurism. But legislation adopting an affiliate-nexus approach would be the real mistake.

Seth L. Cooper is Research Fellow of the Free State Foundation, a nonpartisan, Section 501(c)(3) free market-oriented think tank located in Rockville, Maryland.