Maryland Gov. Martin O'Malley signed a quarter-billion dollars' worth of tax increases into law on Tuesday. The move is meant to keep the state's ever-expanding budget on a path toward growth. "Growth" is the last thing the private-sector economy is going to see in the Free State.
According to the latest Labor Department figures, Maryland lost 6,000 jobs in April, the largest such drop in the nation. Unless the General Assembly and the governor begin to rethink their free-spending ways, Maryland soon will be in the fiscal hole like California and Greece.
Like a good Democrat, Mr. O'Malley has taken up the rhetoric of hating "millionaires and billionaires," but the burden for his tax increases will fall on individuals making $100,000 and families making $150,000. Given the high cost of living in areas like Montgomery and Howard counties, that's hardly enough to qualify for an invitation to the country club. It's not the "1 percent" who will suffer; the increase affects 40 percent of the population. Other levies, such as the "flush tax," will drain all income groups. The increases "on the rich" are going to be disproportionately felt by small businesses that pay taxes through the owners' personal income-tax returns, such as S corporations and limited-liability companies.
These are the true job creators. Boosting their operational expenses fosters an environment hostile to investment. The Kauffman Foundation took notice and recently gave Maryland a C- rating when ranking states for small-business friendliness. The current round of tax increases will likely bring that dismal grade down further. The issue of investors and businesses fleeing the state is something the state's legislators should worry about. As Maryland was shedding jobs, neighboring Virginia was adding 2,700 more.
Maryland has long depended on the federal government as a source of investment and jobs. With Uncle Sam deeply in debt, that's not going to be a long-term source of growth. Maryland has to look to the private sector to attract the things that will actually expand the economy.
As it stands, the state is not particularly attractive. The Kauffman study gave Maryland a D+ for licensing procedures for small business. As Maryland resident Walter Olson has been reporting at Overlawyered.com, prosecutors in Maryland are wasting taxpayer resources in harassing local small businesses. The small firms are being busted for "structuring" financial transactions - that is, making bank deposits in amounts less than $10,000. The latter is the amount that triggers reporting requirements. None of the affected firms has been accused of committing an actual crime.
This year, Mr. O'Malley had the opportunity to correct the large and growing structural deficit in Maryland. Instead of restraint, he chose to present a budget of $35.9 billion, way up from the previous year's $34.2 billion. Instead of cutting spending, the General Assembly chose to raise taxes. At this rate, the only growth industry in Maryland will be the moving business.
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