Raising Taxes and Montgomery

In my last post, I listed some of the potential ways that Maryland could raise additional revenue (read: new taxes) to plug the gaping hole in the budget which would have existed no matter who was elected governor last November. The various tax proposals are far from county neutral; there are big differences between the tax proposals in terms of their impact on Montgomery County.

Democrats may like the idea of taxes which put the pinch on the wealthy but these sorts of taxes inevitably disproportionately are paid by the good people of MoCo. According to the Department of Planning, median household income in Montgomery was estimated as 31% higher than for the state as a whole and higher than any other county except Howard. The U.S. Census similarly estimated that the poverty rate in 2004 was 6.5% in Montgomery as compared to 9.2% across Maryland.

Creating a new upper income tax bracket will thus disproportionately fall on the shoulders of Montgomery taxpayers. My guess that the same is true of efforts to raise the top corporate tax rate since Montgomery is one of the more economically vibrant areas of the state. As anyone who has bought a house lately knows, land isn't cheap here either, so raising the property tax will hit MoCo homeowners hard.

Some may think that this is all good news and that our wealthy county should be ready to pony up the dough. However, much of the County's wealth is reflected in substantially higher costs, especially for housing. People may earn more in MoCo but they have to spend more than they would for an equivalent home and lifestyle elsewhere in Maryland--a reflection of the desirability of living here.

It may be tempting for Gov. O'Malley to raise taxes that hit Montgomery. His political base is in Baltimore and its suburbs remain the top swing counties in the State. On the other hand, Montgomery delivered far more votes to his ticket than any other jurisdiction in the State--and a higher share of its votes than any except Baltimore City and Prince George's.

Some may think that seeing this in county terms is a mistake. Reggie Oldak, formerly a candidate for delegate from affluent District 16, has suggested that it is time to make the state income tax more progressive and close loopholes in the corporate income tax. Perhaps one should view upper income tax brackets as simply as ordinary people versus the wealthy.

Except that many critical services, such as the schools and county police, are funded and carried out at the county level. Poor residents of Montgomery would be a lot better off if these upper income taxes were county taxes instead of state taxes as the revenue would stay here. Raising these taxes at the state level will also make it politically tougher to raise county taxes.

I'm not suggesting that Montgomery should get the same share of taxes back as it pays to the State. It would be a bizarre system if that were how it worked. Nor am I saying that changing the tax system should be off the table. However, Montgomery's legislators better make sure that the County receives funding (not future promises) for its spending priorities before agreeing to any of these proposals.

MoCo is prosperous but it is facing new and expensive challenges in terms of education and transportation to take just two examples. It will take money to meet these challenges. With the largest delegation in the State, Montgomery's legislators should be ready to play politics in the top leagues to protect our interests and not give away the store by agreeing to new taxes before seeing where the new spending will go.