A mod­ern­ized tax code would pay for Kir­wan changes

Baltimore Sun Sunday - - COMMENTARY - By Ben­jamin Orr and War­ren Deschenaux

With the Mary­land Gen­eral Assem­bly un­der­way, leg­isla­tive lead­ers are ex­press­ing strong sup­port for a plan the Com­mis­sion on In­no­va­tion and Ex­cel­lence in Ed­u­ca­tion, also known as the Kir­wan Com­mis­sion, to make Mary­land’s ed­u­ca­tion sys­tem among the best in the world.

The com­mis­sion’s blue­print pro­vides a thought­ful roadmap for strength­en­ing our pub­lic schools to en­sure ev­ery child in our state has the op­por­tu­nity for a high-cal­iber ed­u­ca­tion. The plan would pro­pel Mary­land to the fore­front in na­tional ed­u­ca­tion re­form, and leg­is­la­tors, both Demo­crat and Repub­li­can, have sup­ported the blue­print.

As pol­i­cy­mak­ers pre­pare to adopt these much-needed re­forms, they must also iden­tify how they will pay for them while bal­anc­ing the many other needs of Mary­lan­ders. Pol­i­cy­mak­ers must iden­tify a fair and sus­tain­able rev­enue pack­age to en­sure we can give our schools the re­sources they need. Oth­er­wise, we run the risk of fall­ing back into old pat­terns of un­der­in­vest­ment over time. Sus­tain­ing our in­vest­ments in health care, trans­porta­tion and pub­lic safety, along with im­prov­ing our schools, re­quires com­mon­sense steps that polls show en­joy strong sup­port from Mary­lan­ders.

A pos­i­tive first step would be to bet­ter pub­li­cize the an­nual cost of im­ple­ment­ing the blue­print and a recog­ni­tion that our cur­rent rev­enue sys­tem is both up­side down in terms of peo­ple’s abil­ity to pay and built in large part on a 1950s un­der­stand­ing of how the econ­omy works.

We have decades of ex­pe­ri­ence an­a­lyz­ing state bud­get and tax pol­icy, and we are con­fi­dent that, with this hon­est ac­count­ing of the state’s fi­nances, Mary­land can raise the rev­enue we need to im­prove our schools by mod­ern­iz­ing our tax code to re­flect the re­al­i­ties of our 21st-cen­tury econ­omy and clean­ing up the tax breaks that have been forced in by spe­cial in­ter­ests.

Let’s be­gin by end­ing loop­holes that al­low large, prof­itable, multistate cor­po­ra­tions to use ac­count­ing gim­micks to avoid pay­ing in­come taxes in Mary­land. About one-third of the largest cor­po­ra­tions in Mary­land pay no state in­come taxes in a given year. Clos­ing two of those loop­holes may gen­er­ate $135 mil­lion an­nu­ally, ac­cord­ing to state an­a­lysts. End­ing or re­form­ing a va­ri­ety of in­ef­fec­tive busi­ness tax cred­its would net the state an­other $40 mil­lion each year. Nei­ther of these steps would af­fect av­er­age Mary­lan­ders, but would en­sure that the largest busi­nesses in the state are con­tribut­ing to the ser­vices they ben­e­fit from in the same way small, Mary­land-based busi­nesses do.

We should also ad­dress the state’s up­side­down tax sys­tem. To­day, the wealth­i­est 1% of Mary­lan­ders — those earn­ing more than $535,000 per year — pay a smaller share of their in­come in state and lo­cal taxes than the rest of us.

This means bring­ing rates down for those earn­ing be­low the state’s me­dian in­come — giv­ing hard-work­ing fam­i­lies some tax re­lief — while en­sur­ing the wealth­i­est 1% pay their share and restor­ing the high­est tax bracket for an­nual in­come over $1 mil­lion. This, along with other tweaks, like re­mov­ing a loop­hole that al­lows hedge fund man­agers to pay a lower tax rate on their earn­ings, would help make our tax code more eq­ui­table and en­sure that every­one is pay­ing their fair share. Those changes to the in­di­vid­ual in­come tax sys­tem would bring in roughly $1 bil­lion a year to im­prove our schools and make Mary­land stronger.

The op­tions with the great­est po­ten­tial for suc­cess, that poll strong­est among Mary­lan­ders and that would also make our tax sys­tem more eq­ui­table are clos­ing loop­holes carved out by spe­cial in­ter­ests. When we talk to peo­ple around the state about the ar­eas where our tax sys­tem falls short, most find it out­ra­geous that large, prof­itable com­pa­nies can pay no in­come tax but ben­e­fit from state and lo­cal ser­vices — in­clud­ing pub­lic schools.

Tak­ing these steps to clean up our tax code and en­sure we all pay our fair share would take Mary­land a long way to­ward fully fund­ing the Kir­wan Com­mis­sion’s vi­sion.

We can’t make the same mis­take we made a decade ago when the Gen­eral Assem­bly failed to ad­e­quately sup­port the rec­om­men­da­tions ad­vanced by the Thorn­ton Com­mis­sion, a sim­i­lar panel that pro­duced a ma­jor re­form pack­age. That plan was never fully funded, and we are see­ing the re­sults now as our school sys­tem’s per­for­mance de­clines along with our na­tional rank­ings.

Let’s also be lead­ers in mak­ing our tax sys­tem fairer to pay for the vi­tal in­vest­ments our kids and our state de­serve.

Ben­jamin Orr ([email protected]­con­omy.org) is ex­ec­u­tive direc­tor of the Mary­land Cen­ter on Eco­nomic Pol­icy. War­ren Deschenaux (wde­[email protected]) is the former ex­ec­u­tive direc­tor of the Gen­eral Assem­bly’s De­part­ment of Leg­isla­tive Ser­vices and served as the leg­is­la­ture’s chief fis­cal an­a­lyst.

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