Pandemic or No Pandemic, Taxes Rise in Maryland
The Coronavirus pandemic has brought not just illness and death, but frightening uncertainty to the world economy. In Annapolis, however, one thing remains certain: our legislators want taxes to keep rising.
Despite the unusual event of the 2020 General Assembly ending three weeks early due to the global health crisis, Maryland politicians focused on their usual priorities: taxing and spending. Within just a few days of adjournment, state legislators managed to pass several major tax bills that were introduced to fund the controversial $32 billion education reform recommended by the state Kirwan Commission.
Bills that passed include a tax on digital downloads (HB 932), another on digital advertising (HB 732), taxes on sales of tobacco and vaping products (HB 732), and higher tax rates on cigarettes (HB 732). Together, these taxes add over $400 million a year to the heavy burden on Maryland taxpayers, who are already struggling economically due to the pandemic.
All of these taxes are problematic in their own ways. For instance, the tax on digital advertising is a tax that will affect Maryland’s small businesses because they rely heavily on affordable access to relevant potential consumers in order to compete successfully and maintain or increase market share. Meanwhile, cigarette taxes are regressive, as a significantly higher percentage of lower-income Marylanders smoke.
But leaving aside discussion of the poor design and targeting of these taxes, it is both economically unwise and morally wrong to impose higher tax burdens on Maryland residents at this fragile time. Since the Coronavirus outbreak, Maryland businesses have seen their sales tank; many fear having to close permanently. The state experienced a five-fold jump in unemployment claims last week.
Therefore, state Comptroller Peter Franchot warned the legislature to put a hold on any plans to raises taxes: “The last thing that Maryland families want or need now, in this heightened period of panic and economic uncertainty, is to see headlines about new tax or fee increases.”
But if we look back at history, bad timing has never stopped Maryland lawmakers from introducing new taxes. At the height of the Great Recession of 2008, then- Gov. Martin O’Malley introduced a 6.25 percent millionaires’ tax; as a result, the state lost 30 percent of its millionaires and $257 million in associated tax revenues.
Thankfully though, the rushed timing of the session did not allow all the Kirwan-related tax bills to pass. Most notably, the proposed “luxury service” tax (HB 1354) failed to pass. Earlier in the session, the state also considered a broader application of the sales tax to most services, but to almost everybody’s relief that bill was also rejected.
To pass other tax hikes on time, however, state legislators took questionable actions, such as combining two completely unrelated taxes into one bill: the digital advertising tax was passed as an amendment to the tobacco tax bill. Overall, the 2020 session ended with many questions and concerns regarding a distinct lack of transparency and public engagement.
So, pandemic or no pandemic, higher taxes may be in Maryland’s future. And the most depressing fact is that these taxes would not only hurt Maryland’s taxpayers and economy but would do little to improve the quality of Maryland’s education system. Just like the Thornton reforms of the early 2000’s, the Kirwan plan focuses on dollars expended rather than results obtained or parents empowered, and are unlikely to improve children’s educational outcomes significantly in the long run.
Truth to be told, practicing fiscal discipline has never been Maryland’s strong suit. But dropping new tax bombs on Marylanders in the middle of a global health crisis to fund an irresponsible and unaccountable education reform is perhaps legislators’ record low.
Therefore, Gov. Larry Hogan should veto the Kirwan tax bills and even the Kirwan plan itself to show his support for Maryland taxpayers and businesses and to preserve budgetary flexibility in the face of what are likely to be very trying financial times over the coming year – or perhaps longer. Even if legislators ultimately over-ride such vetoes, the weeks or months before they take such action would give everyone more time to assess the fallout from the Coronavirus, weigh priorities, and make careful rather than rushed decisions. Marylanders have stayed remarkably strong throughout this historic crisis; they need similar strength from their elected officials.