In a continuing postmortem to the recent General Assembly session, I received a tagteam effort from Delegates Anothony O’Donnell and Christopher Shank regarding the “millionaire’s tax” that replaced the dreaded “tech tax.” (And as always thanks to Carrie Simons-Sparrow for passing this along to me.) The pair make some good points:
Recent coverage of the repeal of the computer services tax in Maryland is reminiscent of George Orwell’s book 1984. Some of the same legislators who argued strenuously in favor of the tax during the legislative special session, are now hailed as heroes of the repeal effort. As a few issues have been confused and distorted, we would like to take this opportunity to clarify some facts from our perspective.
The expansion of the Maryland sales tax to include computer services was first enacted during the November 2007 Special Session. It was added to the already historic tax increases in, literally, the dark of night in a Senate committee, with no discussion or input from the public or members of the industry. This game of tax hokey pokey had been going on for several days, as various industries were in, and then out. Ultimately, the tech services industry became the loser in this game. At that time, the Republican Caucus argued on the floor of the House of Delegates how damaging this tax would be to the burgeoning tech industry in Maryland, and to the state’s economy. We also pointed out the singular unfairness of the process that led to this tax’s inclusion in the package being strenuously pushed by Governor O’Malley and the Democrat leadership.
We offered an amendment to strip the tech tax from the package, which failed. The General Assembly went on to pass the largest tax increase in Maryland history. Once again, the Republican members argued and voted against these taxes, proposing as an alternative, specific reductions in the rate of growth in spending to address the looming deficit.
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Governor O’Malley and the Democratic leadership chose to ignore all of the alternatives presented by the Republican caucus, and, after finally succumbing to public pressure, replaced the tech tax with another tax, this time the so-called “millionaire’s tax”. This backfilling was entirely unnecessary. As the Republican membership has pointed out multiple times over the past months, Maryland does not have a revenue problem, it has a spending problem.
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The increased income tax is likely to have an equally damaging effect on Maryland’s economy. Many of the individuals who qualify for this increased tax are actually small businesses who file as a Subchapter S corporations, so once again a tax has been imposed which will damage small business.
The recent experience of California serves as a cautionary tale of the type of impact this new tax will have. When California imposed such a high-income tax several years ago, 5,000 of the state’s 25,000 highest income earners left the state. By depending on such a narrow sector of the tax base, for so much of their revenue, California quickly went into a $7 billion deficit, largely attributable to the new tax. Just like the tech tax, this new burden provides a disincentive for these high income families to reside in Maryland, and contribute to our state’s economy as well as to the state coffers. Clearly, the decision of a few of these highest income earners to leave Maryland in search of greener pastures would have a huge impact on our State’s finances, which are already unstable.
Actually, I think many people, wealthy or not, are fleeing California because it’s being overrun by illegal immigrants but that’s a post for another day. Regarding the new tax on wealthy Marylanders, the Delegates could have also pointed out that almost any new tax fails to bring in the revenue that the beancounters with the rose-colored glasses who inhabit government cheerfully predict will roll in once the tax is placed into effect. This is especially true when the target is narrow, such as smokers, purveyors of alcoholic beverages, or millionaires. All of them can vote with their feet and find a better deal someplace else.
I have one counterpoint to their post, however. Yes, a majority of Republicans in the General Assembly consider themselves fiscal conservatives. Unfortunately, only 7 Republicans in the Senate and 31 of the Republicans in the House of Delegates stood strong against the O’Malley budget. If we can’t even place a united front against the bloated budget that is being sent, what use is putting up an alternative? Yeah, I’m sure that some of the GOP people (unfortunately the list includes both local State Senators and Delegate Elmore) will claim that there’s something in it for their region or pet cause that they placed there, but if we’re going to be principled we have to sometimes just say “no way.” The Maryland GOP isn’t going to get anywhere if they roll over like Fido when there’s a Milk-Bone in master’s hand, even if they do present alternatives.
Yeah, we’ll see how well this post goes over this weekend. So I’m hardline – deal with it.
Crossposted on Red Maryland.
