- - Monday, January 22, 2018

ANALYSIS/OPINION:

Most Marylanders agree that Maryland income taxes are too high. In various rankings we almost always fall into the category of the 10 worst states. For example The Tax Foundation ranks Maryland 9th highest in individual income taxes per capita; and the 2018 business tax climate index ranks Maryland among the 10 worst of the 50 states.

A bipartisan commitment to tax reduction would be to the great benefit of citizens. Legislators from both parties have expressed an interest in tax relief to address the federal action diminishing the State and Local Income Tax deduction, now limited to $10,000. So what better time to consider other ways to reduce the tax burden?

Gradual reduction of state taxes works best. As a practical matter, the goal should be gradually cutting Maryland’s high 5.75 percent personal income tax rate to a low, flat tax rate. Remember, in addition to the state tax, the average county piggyback tax is 3 percent. So if the goal were to set the state tax at 3.5 percent, this would mean a total rate of 6.5 percent.

Why a flat rate? The simple answer is that a graduated tax penalizes successful people and the middle class. Progressive taxation discourages investment and job creation, and causes successful Marylanders to move to lower tax states.

So how do we cut taxes from a top combined state and local tax rate of 9 percent? One overdue strategy is to repeal some of the budgeted mandates that take up 83 percent of state spending. Some date back to World War I. Many are nonsensical and represent a waste of money.

The legislature should be looking for mandates ripe for repeal. It should be careful about overfunding departments. Much overfunding, like unneeded budgeted jobs that go unfilled, becomes slush money for the agencies.

It should be noted that the last significant increase in income taxes was during the 2008 Fall Special Session. In order to fund new spending, it was claimed that the state needed more money. Well instead we got less revenue a lot less for years. In fact, according to the required annual financial reports (CAFR), the state lost money every year for five years from the high in FY 2008 until FY2013. It lost a total $1.9 billion.

Maryland has been anti-business since the 1960s. Subsequently we lost many major corporations and regional headquarters. After the 2008 tax increases, the state lost as many as 8,000 small businesses. The Baltimore area had for years been the economic powerhouse of the state. No longer. Children who once were never going to leave home, were forced to seek jobs elsewhere, mostly out of state.

To recover we must make Maryland attractive for business. Cutting personal taxes is very important for small businesses to start and grow; but we also need to cut corporate income taxes from 8.25 percent down to a goal of at least 6 percent (6 percent is typical of most states).

Instead of the state picking winners and losers by offering special deals to corporations in certain zones, or to retain corporations that threaten to leave, the goal should be lower rates across-the-board that are competitive with other states.

Maintaining existing businesses and attracting new ones are goals that are competitive and will assure healthy companies with ready jobs. A state that is mindful of the best interests of constituents will ensure enough revenues to function successfully and efficiently.

The best New Year’s resolution of 2018 would be for Democrats and Republicans to set forth on the mutual goal of lower taxes. Personal and corporate income tax cuts would be a great present for Maryland families, would stimulate the economy, and generate opportunities for all.

Dee Hodges is president of the Maryland Taxpayers Association and Ambassador Ellen Sauerbrey is a former Republican gubernatorial nominee.

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