The tax-free year?

As an opponent is wont to do, yesterday David Craig released a criticism of the state’s tax-free week program:

Anything that gives Marylanders some tax relief is better than nothing, and it’s a recognition from a stubborn political monopoly about the need to spur the economy, but the need for a so-called ‘tax free week’ raises a broader issue. Why is it just for a week, and why do politicians decide what items qualify?

State government has collected nearly $4 billion since the enactment of a 20% sales tax increase in 2007. That is a lot of back to school clothes, and handing out some extra pocket change for shoes, shirts and pants is a sorry pittance considering this regressive, harmful tax hits working people the hardest.

Considering Craig comes from a county that’s a half-hour drive from a locality which has “tax-free forseeable perpetuity” – and isn’t afraid to trumpet that fact in every advertisement bargain-hungry Marylanders see – he raises the right question. But what is the answer?

According to the state’s latest budget summary, the sales tax raises $4.3 billion a year. So even if it were a “true” tax-free week, we would only lose about $83 million in total. Given the vast limitations on what can be purchased, I would figure the state is “sacrificing” no more than $10 million to tell the voters they care. (On a side note, the sales tax is only 12% of revenue but Uncle Sam is 27 percent, supplying $9.8 billion to prop up Maryland.)

So to me Craig’s question is valid, but I would go further and make the case that the state could do without the sales tax and be just fine. It’s 1/8 of the revenue, but consider the same budget document I refer to notes the difference between FY2012 and FY2014 spending is $3.47 billion. Just cutting the budget to FY2012 levels obviates the need for 3/4 of the sales tax revenue and I’d be pretty confident increased economic activity would cover the rest. Delaware may piss and moan about lost business, but that would be their problem. They still have an easier go of adjusting their casinos to market conditions thanks to our shortsightedness, so there’s always that.

Looking at that Maryland state budget, it’s also worth mentioning that eliminating the corporate income tax entirely would “cost” the state $1.091 billion – an amount almost exactly equal to the difference between the FY2013 and FY 2014 budgets. So maybe the sales tax stays for the interim – and remember, that $4.3 billion will likely go up somewhat because gasoline is now subject to a 1% sales tax, or about 3.5 cents per gallon – but we eliminate the corporate income tax and level-fund the budget. There are all kinds of ways to make the numbers work, with the key idea being maximizing the number of dollars in Marylanders’ wallets, not Annapolis coffers.

Of course, we know the media and Democrats (but I repeat myself) would scream bloody murder; to them I say: we tried it your way, and it’s becoming clear we have an utter failure on our hands. It’s time for the adults to take over again.

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