The forgotten tax cut
Our view: Last year, lawmakers approved a $152.7 million tax break exclusively for the rich — a symbolic move now in danger of getting even sillier
How much should be spent on a public relations campaign touting Maryland’s improved business climate? Would $21.3 million be enough? How about $46.3 million? Or better yet, how much might be gained if $152.7 million is devoted to the cause?
The good news is this massive investment of tax dollars in a campaign unlikely to produce much job growth in Maryland, at least not directly, isn’t a matter to be decided by the General Assembly next year. The bad news is that it’s already been approved — and it happened before Republican Gov. Larry Hogan even took office. The question more likely to be put before the state legislature in a matter of weeks is whether it should be accelerated.
In 2014, the legislature agreed to dramatically increase howmuch wealth can be excluded from the state’s inheritance and estate taxes to bring them in line with federal standards. By Fiscal 2019, it will have increased from a $1.5 million exemption to $5.9 million, a huge benefit to Maryland’s wealthiest residents but one that even the plan’s most ardent supporters admit won’t help the poor and middle class, as their estates don’t come close to meeting current limits.
We opposed the choice at the time, particularly when reductions in federal spending have already adversely affected state tax revenue and, if lawmakers wanted to stimulate the state’s economy, there were far better options available. But the winning argument came down to this: Rightly or wrongly, Maryland’s business climate has gotten too much bad press to be ignored and the estate and inheritance taxes — which are higher than in nearby jurisdictions except for the District of Columbia and New Jersey — have become symbolic of the problem.
Thus, the decision was made to gradually increase the estate tax exemption at a cost of $21.3 million this year, $46.3 million in Fiscal 2017 and so on. Nobody claims that extra inheritance will produce job growth, at least not with a straight face. That’s why it appears to be mostly a PR campaign — a tax policy that benefits only a tiny fraction of state residents (as only about 3 percent of descendants ever had a tax liability under the old standards, according to state estimates), but is supposed to keep the rich from moving out of state.
But wait, it gets worse. A 25-person commission set to make recommendations regarding Maryland’s business climate — a group chaired by Norman Augustine, the former Lockheed Martin CEO — is reportedly considering whether the estate tax cut might be accelerated. While much of what the Augustine Commission is also mulling over (reducing the personal income tax rate, repatriating foreign profits and perhaps even raising the taxes on cigarettes and alcohol) sounds promising as net jobs producers, speeding up the inheritance tax ought to be regarded as dead on arrival by Democrats in the State House.
After all, it’s Governor Hogan who is complaining about future budget deficits even as he sits on a current surplus. If his concerns about the state’s underfunded pension plan are serious — as his choice this year to withhold millions in state education money for Baltimore City and many other school districts was touted as demonstrating — then how can he justify taking tens of millions of dollars out of the budget to put it into (and there’s really no other way to describe such a move) the bank accounts and brokerage accounts of rich people?
Granted, the lunacy of current estate tax policy is mostly the fault of Congress and the ridiculous Republican “death tax” campaign that somehow convinced a majority of Americans they should assume a greater share of the federal tax burden instead of the Gateses and Buffets of the country even as the after-tax income of the wealthiest 1 percent quadruped since 1979. Perhaps the public will eventually recognize the scam and wonder how it came to pass that the top 20 percent of households controlled 84 percent of the nation’s wealth.
But that doesn’t mean Maryland has to make matters worse, particularly at a time when income inequality and the desperate economic circumstances of neighborhoods like Baltimore’s Sandtown-Winchester have spurred social unrest — the plight of Freddie Gray and the issue of police brutality being just one tip of that particular iceberg. If the 2014 rollback of Maryland’s estate and inheritance taxes had any positive impact whatsoever, it’s not apparent on North Avenue, and we aren’t holding our breath for some “trickle down” benefit in the years ahead. Even as a public relations campaign, the gamble shows no sign of paying off, so why double down now?