In Maryland, who pays their ‘fair share’ for government?
With lawmakers now having officially passed the halfway point in the annual 90-day Maryland General Assembly session, it’s time to get serious about balancing the state budget and taking action to reduce a structural deficit that could exceed $3 billion by 2028. Whatever Gov. Wes Moore and his Democratic majority embrace — be it substantially higher taxes (unlikely), massive reductions in spending (ditto) or some combination of taxes and budget cuts (the typical compromise) — the circumstances raise a question: Are all Marylanders now paying their fair share of the cost of government, and will they continue to pay after whatever deal is struck?
The answer is probably no.
Let’s put it another way. Consider the Maryland taxpayer living a middle-class life paying his income, property, sales and other taxes, tolls and fees to state and local governments. Now compare that person to another living a few blocks away, but with a much bigger paycheck or, more likely, investment income. Or maybe even consider the branch office of that big corporation located downtown. What percentage of their assets are they forking over to the tax collector? Shouldn’t it be something equivalent to the middle-class Joe? It’s often not, and it’s tilted in favor of the wealthy. A few taxes are modestly progressive, but some — the state’s 6% sales tax, for example — are effectively regressive. It applies the same rate to a construction worker’s $10 t-shirt as it does to a $500 designer silk top. Meanwhile, an estimated one-third of corporations in Maryland pay nothing in income taxes.
Fairness, of course, is in the eye of the beholder, but given the real impact of inflation and its adverse impact on such necessities as groceries and rent, this is a good time to consider not just the size of Maryland’s tax collections but their equity. That’s the point of the “Fair Share for Maryland Act of 2024,” a tax reform package that seeks to “rebalance” the tax code to lower taxes for many families while raising it for wealthy individuals and for big corporations. As often happens when it comes to tax reform, the devil is in the details, but the essential point of an existing imbalance in the tax code is undeniably true.
Here’s how it would work. First, it institutes combined reporting and the “throwback rule,” so that large national and international corporations could not so easily avoid state taxes. Next, it closes the “LLC loophole” that allows certain partnerships or “limited liability corporations” to avoid corporate taxes (while exempting the first $1 million in profits so that mom-and-pop businesses would not be adversely impacted).
The legislation also raises the personal income tax on millionaires (the top bracket for those earning $1 million per year or more would by 7% instead of the current 5.75%), reinstitutes certain inheritance taxes on large estates, taxes capital gains like income, expands certain working family tax credits (including the child tax credit), and would provide greater resources for the state comptroller to hire auditors to crack down on wealthy individuals and corporations that underreport their income.
All told, Senate Bill 766/House Bill 1007 would net state government hundreds of millions of additional tax dollars each year.
Advocates for these sweeping changes constitute a veritable “Who’s Who” of progressive advocacy groups, including the state’s major labor unions, the NAACP, Sierra Club, Strong Schools Maryland and CASA. And while we could easily quibble with some details, the overall goal here is laudable: shifting a greater part of the burden of financing the services of government to those who can more easily afford it. To describe the proposal as a broad tax increase is misleading, as it would also lower costs for some. Even some millionaires are reportedly in favor of a little more fairness here.
We would urge Marylanders to go online and read the specifics of the legislation and then let their thoughts be known to their representatives in the State House and to Gov. Wes Moore. Is such a complex measure a heavy lift? Absolutely, but when the alternative may mean sacrificing housing, public education, child nutrition and public transit programs — and perhaps even locking up more offenders because pretrial home detention monitoring funds have dried up — it would seem a reasonable trade-off.