By Donald C. Fry
Tax advocates have shifted the debate over closing Maryland’s projected $1.5 billion operating deficit away from “if” we should increase taxes to the question of “whom” we should tax and “how much.”
In last month’s GBC State House Update,” I outlined a number of options for increasing taxes that are currently being considered by leaders in Annapolis and I included estimates of new revenue each option could potentially raise. Since then, media reports show state leaders focusing attention on the notion of tightening and/or raising corporate income taxes. They’re also considering potentially increasing Maryland’s personal income taxes, particularly for higher income taxpayers, in the name of “progressive taxation.”
One advocacy group even touted a “poll” that purportedly showed almost three-quarters of Maryland voters in favor of increasing taxes by more than $1.5 billion. Needless to say, I’m skeptical of that finding. Amid the growing tax talk among our leaders, there are several compelling ironies and realities that concern me.
First, it’s obvious to me that Maryland’s critical transportation funding needs are getting lost amid the concern over closing the General Fund deficit. The state’s Transportation Trust Fund needs a minimum $400 – $600 million per year in new revenues to pay for a backlog of essential transit, highway, port, airport, rail and other currently unfunded projects now in the planning stages.
Our leaders’ top priority, however, appears to be raising $1.5 billion annually in new revenue for the General Fund to, in effect, continue the state government’s operational status quo. They are missing the point that for a third of that amount taxpayers can gain badly needed, tangible capital projects to directly strengthen our transportation system — one of our most important resources for keeping Maryland’s economy strong and competitive. The GBC strongly believes that investment in transportation infrastructure is the most significant economic development challenge currently facing Maryland.
Second, the reality is that the state’s General Fund — for which the $1.5 billion deficit is projected — has experienced a more than 62 percent increase in annual revenue during the last decade, according to state data. Meanwhile, under current revenue trends for the state’s Transportation Trust Fund, the amount of annual funding available for capital investment in transportation projects will decrease by 35 percent in the next five years, state officials warn.
Thus, it would appear from a taxpayer’s standpoint that if revenue increases are to be considered, transportation funding should be the top priority.
Finally, Maryland lawmakers and elected officials too often succumb to the habit of making businesses tax targets as if they are adversaries instead of job generators and economic engines.
Our leaders tend to forget that, like all taxpayers, businesses do not comprise a captive audience. We must be careful not to impose tax levels that discourage business presence or investments.
There is an inverse relationship between business and taxes. The higher the taxes, the less business investment in a region or state. The more business investment — and the economic activity it generates — the less need for higher taxes.
The reality is that businesses provide jobs for people and the more that the legislature creates an environment that is hostile to businesses, the more it creates an environment that is hostile to the creation of jobs.