Brian Griffiths, leader of Red Maryland, believes that the tax package passed during last year’s special session is causing Maryland’s budget problems. He accuses me of covering for Governor O’Malley and the General Assembly by not blaming them for their “irresponsible tax hikes.” But Griffiths did not bother to check the economic data or my prior work before expressing his opinion. Nor does he understand the relationship between fiscal policy and economic growth.
Even casual readers of the news know that Maryland’s economy has suffered along with the rest of the nation. The causes of American economic stagnation are well known: a bursting real estate price bubble, resulting problems in financial markets and rising fuel prices exacerbated by a weak dollar. (The weak dollar is caused in part by immense federal budget deficits driven by the war in Iraq.) Those national problems affected Maryland. According to the Bureau of Labor Statistics’ Current Employment Survey, job growth in Maryland slowed from 36,000 in 2005 to 28,500 in 2006 to 24,600 in 2007. That is not the fault of either Governor O’Malley or Governor Ehrlich – it is merely a reflection of national economic problems that impacted the state’s economy.
The slowing economy laid bare an underlying truth: the state had a structural deficit and was on track to spend $1.10 for every $1.00 it received in taxes. As I said nearly a year ago in a blog post ignored by Griffiths, the cause was two-fold: a 10% income tax cut in 1997 and billions of additional spending on education (commonly called the Thornton Plan) started in 2002. Both of these events occurred during the Glendening administration, but Governor Ehrlich did nothing to reverse them. It therefore fell to Governor O’Malley to devise a solution to the problem in the face of a bad economy. I was unenthusiastic about the ultimate outcome, but it was an honest attempt to right the state’s fiscal ship.
Griffiths said the following about my post yesterday on the budget: If Pagnucco was being an honest broker, he would note that the decrease in revenues is directly caused by the irresponsible tax hikes enacted by O'Malley and Annapolis Democrats last year, and that the current structural deficit has been caused by irresponsible discretionary spending increases. But, for reasons that shall remain obvious, he refuses to place any blame whatsoever on O'Malley and his band of merry tax hikers.
Griffiths’ assertion that the tax hikes caused a decrease in revenue is directly contradicted by state budget officials, as reported by the Examiner: David Roose, director of revenue estimates, said that the slowing economy had lowered receipts from the income and sales taxes. If the sales tax hadn’t risen from 5 percent to 6 percent, “receipts would have been essentially flat, the worst performance since 1991.”
There are of course limits to the usefulness of sales tax increases in a small state with lots of neighbors. The Sun’s Jay Hancock and a recent Post article speculate about whether cross-border shopping has cut into sales tax revenues. But Griffiths should do his homework: I criticized the special session sales tax hike from the very beginning and recommended a crackdown on tax-cheating employers instead.
Griffiths implicitly assumes that tax hikes hurt the economy while government spending cuts do not. Here he demonstrates a basic ignorance of every macroeconomics course taught to college freshmen. From the perspective of economic growth, it does not matter whether the government implements a tax hike or a spending cut as a deficit reduction measure. Both reduce aggregate demand in the economy, especially when taking into account a reverse multiplier effect. A big tax hike and a big spending cut are equally damaging to the state’s economy in the short term, but because the state cannot deficit spend (as the federal government does), policy makers must pick one, the other, or both. After next year’s round of spending cuts is added to last year's tax package, we will have both.
The best thing the state government could do to revitalize Maryland’s economy is to increase its investment in infrastructure, even if it means taking in additional revenues. The Montgomery County Chamber of Commerce recommended raising $600 million for the Transportation Trust Fund this year, a step that was unfortunately not taken by the General Assembly. The business community and building trades unions believe that infrastructure construction creates jobs, long-lasting physical assets and abundant opportunities for private sector growth. Those things in turn will stabilize the budget over the long term. If only conservatives like Brian Griffiths could agree.
Friday, September 05, 2008
A Reply to Brian Griffiths on the State Budget
Monday, April 21, 2008
Transportation in a Crunch
By Marc Korman.
A recent Gazette comic, reproduced below, sums up the recent action by the General Assembly when it comes to transportation. A big loser in this year’s session, and a potential loser in future years, is the state’s transportation funding.
Coverage of the General Assembly’s repeal of the 6% computer services sales tax mostly ignored the negative effect on transportation and instead focused on the new millionaire’s surcharge, really just a new tax bracket, that taxes earnings over $1 million at 6.25%. Far less attention was paid to the $50 million cut from the state’s Transportation Trust Fund for each of the next five years. Just a few months ago, the General Assembly and the Governor received much earned praise for adding $420 million in new annual revenue for transportation.
The opponents of the computer services tax repeal proposed even deeper cuts to transportation, with Senator Madaleno proposing a $150 million annual cut to the Transportation Trust Fund. In a posting to Free State Politics and republished here at MPW, Senator Madaleno justified his proposal by noting that it would still leave in place a $300 million increase from prior to the Special Session. Senator Madaleno also stated that the projects slated to be funded were not good uses of the state’s money. Given the state’s transportation needs, I find the argument a bit curious because the idea that the local transportation projects have no validity because they will only improve “traffic flow in the immediate vicinity of these intersections” begs the question of why they are being funded at all. If Senator Madaleno’s claims are true, and these projects are of such low priority and value, then perhaps our legislators need to convince the Department of Transportation to pick better projects instead of deciding to cut funds.
But the real point for all of those proposing transportation funding cuts of any size is that the needs are real and we need more funds, not less. Even if individual legislators do not support all of the projects on the list of needs, surely each individual Senator supports a majority of these and numerous others. Some of the needs are:
1. The Inter County Connector-$2.4 billion
2. The Purple Line-$105 million to $1.685 billion (depending on the method selected)
3. Corridor Cities Transitway-$850 million estimate
4. BRAC Enhancements in Bethesda-$70 million estimate
5. Georgia Avenue and Forest Glen Road Crossing - Cost unknown, but I put it in to avoid the wrath of MPW’s writers.
Instead of searching for ways to meet these needs, everyone is proposing cuts. If we are not going to raise the gas tax, the least we can do is stop raiding the Transportation Trust Fund. As I said, it was only a few months ago that we were praising the $420 million increase. It was just a year before that we were criticizing Bob Ehrlich for raiding the Transportation Trust Fund. In 2010, I do not want the Democrats to be accused of the same transportation policy failures.
A Note of Concurrence from Adam Pagnucco
Marc Korman's argument is even more powerful than he originally stated. The fact is that Maryland's Transportation Trust Fund (TTF) is already under assault.
First, the revenues devoted to the fund are endangered by the poor economy. The major sources for the TTF are gas taxes, motor vehicle titling taxes and fees (like registrations and licenses), operating revenues (like tolls) and a portion of corporate income tax receipts. All of these revenues will probably record shortfalls in the coming year.
Second, construction material prices are soaring. According to the Bureau of Labor Statistics, national wholesale prices have skyrocketed by 31% for ready-mixed concrete, 73% for gasoline and 78% for asphalt between 2004 and 2007. The situation is exacerbated by an ever-weakening U.S. dollar and rising commodity demand from India, China and other developing countries. These price increases threaten the financial solvency of some construction contractors and will stretch already scarce dollars at MDOT.
Of the $400+ million transportation increase approved by the General Assembly’s special session, $150 million was planned for new projects such as the ones listed above by Marc. The loss of $50 million from the computer tax repeal, the slowdown of TTF revenue sources and rising commodity prices will greatly reduce the amount of money left for new projects. As a matter of fact, if the state protects tens of millions of dollars in planning money for mass transit projects (like Baltimore’s Red Line and MoCo’s Purple Line and CCT), it is entirely possible that all other new work aside from the ICC will be deferred. That means that if the legislature attempts to raid the TTF – as Governor Ehrlich did repeatedly – there may be little left to plunder.
There is another possibility. The legislature could choose to defer system maintenance, which was supposed to receive an extra $250 million per year. The state prioritized system maintenance in the wake of the I-35 bridge collapse in Minnesota. If the state does cut maintenance and a major infrastructure failure occurs, the political consequences will be cataclysmic.
Saturday, April 12, 2008
On Progressive Taxation and Property Taxes
David Lublin raised a number of good points on the property tax increase that deserve a response. Let’s take them in order.
(1) Lots of people have lived in homes for a long time that have appreciated substantially. Particularly for retirees on a fixed income, an increase of over $1000 (very easy to hit in SoMoCo) can be tough even if they live in a high-value home. Even if economic theory says they can borrow against their homes, people really hate that idea for understandable reasons. In any case, this market isn't the best one for realizing the profit.
David rightly points out that some people on fixed income could potentially receive a $1,000 property tax increase under County Executive Ike Leggett’s proposal. Under the formula in my previous post, a home receiving a county property tax increase of $1,000 would have a net assessment of $891,789 (and a much higher gross assessment and market value if the homestead credit applied). But the county provides residential property owners of at least 70 years in age a “senior property tax credit” of 25% of their combined state and county homestead credits. So a senior would be allowed to own an even more valuable home than a non-senior before being subject to a $1,000 property tax increase – perhaps even a home approaching $1 million in market value.
But no one will want to pay that amount of property tax increase. So suppose we relieve the tax increase on seniors with homes approaching a million dollars in market value. If there is to be a property tax increase at all, someone will have to pay more as a result – perhaps seniors occupying homes worth $300,000. But suppose we relieve them too from the extra taxes. Then the burden will fall on young families – a group with substantially less wealth than seniors and significantly less retirement security. Where should the burden fall?
Progressive taxation, a bedrock principle of progressive economic philosophy, holds that tax burdens should advance with income levels. Recent events suggest that principle may be out of fashion in Montgomery County.
(2) Focusing just on the millionaires tax is a mistake. Don't forget all those sales and income taxes raised during the special session. Also don't forget all those fees which were jacked up under Gov. Ehrlich. The voters won't. All things being equal, Americans like having more disposable income. If this is done to maintain services, it will need to be convincingly explained--not necessarily an easy sell though it can be done.
I am not about to forget the tax package from the special session. Because it relied primarily on sales taxes, it was regressive. To quote once again the analysis by the Maryland Budget and Policy Institute: The poorest 1/5 of taxpayers will pay nearly 0.8% more of their income in taxes. The middle 1/5 will pay half that percentage: just over 0.4%. The wealthiest 1/5 will pay between 0.3% and 0.5% of their incomes in increased taxes. This overall regressive distribution occurs because the regressive nature of the sales tax increase overwhelms the progressive features of the income tax changes.
The County Executive’s property tax proposal is progressive and may, in conjunction with the new state millionaire tax, flatten the tax burden. These two progressive tax proposals, which together total $238 million, have attracted immense opposition from a substantial portion of Montgomery’s political leadership. But the $700+ million regressive state sales tax hike passed without a whimper. That is a chilling but instructive development in this county’s political environment.
In any case, I agree that any tax hike, no matter its character, must be explained to voters. The public employee unions are not in the best position to do this since most people will perceive their defense of public services as a defense of their memberships, which is of course their role. It is the responsibility of the politicians to explain why county services are worthy of a tax increase if that is what they believe. That is especially true of politicians who were eager to accept the support and aid of labor during the last election campaign. For the most part, that defense has yet to begin.
(3) The debate has been cast as an either/or debate with no middle ground. Either taxes go up a great deal or services are cut substantially. Like all money issues, this one can be negotiated to all sorts of points inbetween. Both sides know this but are posturing right now is my guess.
I suspect the County Council will have to settle somewhere in the middle. Such is the way of legislative bodies. But the decision to surpass the charter limit truly is an either/or decision. If the council rejects the County Executive’s tax proposal, they will have to cut the budget by a further $128 million.
There is another option. As Delegate Al Carr pointed out in a comment on an earlier post, the County Council is considering increasing taxes on electricity and natural gas. This is a far more regressive option than the County Executive’s property tax hike and it does not need a super-majority to pass. The shade of Annapolis may be descending on Rockville.
(4) The recession may just be starting with next year's budget looking even more grim. As at the state level, the chances of getting both budget cuts and tax increases over the course of several years are starting to look pretty good.
A recession is a distinct possibility as we recently reported. People on the lowest rung of the income ladder, not those earning one million dollars a year, are on the leading edge of the downturn. The residents at the bottom will be sure to bear the brunt of any spending cuts. They should not also bear the brunt of the tax increases. Under the County Executive’s property tax proposal, many working-class people are indeed spared further tax hikes after their setbacks in the last special session. They will not be spared the lash of a home fuel tax hike.
I completely agree with David's judgement that the tax and budgetary choices are going to get tougher at both the state and county levels, not easier, in coming years.
None of this has any bearing on some key questions other have raised: (1) does labor deserve the pay increases, (2) does MoCo need to pay them to maintain quality services, and (3) can MoCo afford the pay increases. The first is a morality, not a market, question. The second is largely market driven. The third is driven by the tax base, economic needs, and taxpayer willingness to pay. I haven't thought much about any of these questions so I won't weigh in just yet.
On point (1):
Speaking as someone who has been involved in several union organizing campaigns, the notion of what a worker “deserves” is a very explosive question. Many public employees are starting to believe that their leaders think they are paid too much. This argument has been stated, or at least hinted at, by more than one of the Democratic candidates in the District 4 County Council race. Economic arguments can be conducted rationally but the question of what a worker “deserves” is a question for the heart. Right now, hearts are pounding inside the public sector workforce.
On point (2):
In a recent survey of county employee compensation, we learned that Montgomery faces potential problems competing for labor in the region. Fair-to-middling (at best) pay levels, a lack of defined benefit pensions and high housing costs may deter top talent from coming here in the future. The existing workforce, originally recruited in times when the county’s housing stock was more affordable, is still known for its excellence. But the entry level talent will gradually erode unless the county keeps up with its neighbors.
On point (3):
In 2006, Montgomery County reported the 8th-highest median household income of all 3,077 counties in the United States. The County Executive’s proposal taxes the median assessed household an extra 38 cents per day. Readers can form their own opinions on whether we can afford that.
But there is a much larger argument here: where does the county’s economic competitiveness come from? Montgomery is perceived to be one of the higher-cost jurisdictions for residents and businesses in the region. So why are people willing to pay those costs? One reason is the excellent reputation of the schools and public services. As a former resident of the District of Columbia and a rural area in upstate New York, I have a meaningful standard of comparison for the county’s service quality.
But Montgomery’s true competitors are jurisdictions like Fairfax – counties that also have good schools and abundant resources. We are never going to compete with Virginia by matching them on tax rates. Instead, we will have to equal or surpass them in our quality of education, planning, parks, police and other public services. Those services comprise a valuable, productive asset that preserves our standard of living, maintains our property values and protects our economic edge. The money we spend on the public sector is an investment, not money thrown down a black hole. Any investment has to be evaluated not merely on its cost but also on the return it generates for its holders. Why are we hearing so much about the cost but so little about the return?
Monday, March 31, 2008
In Defense of Taxing Millionaires
The current battle over whether to replace the hated computer services tax with an income tax surcharge on millionaires has become a defining ideological struggle among Maryland state legislators, especially those from Montgomery County. Many MoCo Democrats, including a few really good ones, argue that millionaires pay enough. Today I take up the banner for the rest of us.
The best case for the other side has been presented by David Lublin, founder and owner of this blog. His central arguments are budgetary and geographic. David points out that millionaires pay a lot of taxes. He does not want them to move out because if they do it will hurt our capacity to fund programs we need. He also describes both the computer tax and the millionaire surcharge as targeting MoCo because both affect lots of people who live in the county. “You're replacing one tax which targets Montgomery County with another that does exactly the same,” he writes.
David’s argument is logical and pragmatic, and I respect it. But a millionaire surcharge is a worthy alternative to the computer tax for three reasons.
First, let’s examine how people who earn a million dollars in a year get their money. I will bet that the majority of them do not earn a million dollars every single year. Rather, many of them will earn in the mid-to-upper-six digits in most years but then obtain an occasional spike. That spike may be from a payout in a lucrative lawsuit settlement, a capital gain or an inheritance. Would people in this category really move out of the state because they had to pay a couple extra thousand dollars in a year when they got lucky?
As for the super-rich, those who do earn a million dollars in every single year, they already can park their compensation in tax-deferred vehicles like 1031 exchanges or establish part-year residency in no-income-tax states like Florida and Nevada.
The Washington Post reports that 6,150 Maryland residents reported at least one million dollars in income in 2005 and 2,535 lived in MoCo. How many of those residents earned a million dollars in every single year over the last five years and would therefore be really tempted to move? Possibly several hundred, but only the Comptroller’s office would know for sure. Are these several hundred people really worth the colossal amount of political capital that MoCo’s state legislators are expending on their behalf?
Second, anyone who believes that the economic well-being of our county is a linear function of the number of millionaires who live here does not understand the source of our prosperity. Montgomery County’s vitality comes from its excellent schools, the entrepreneurialism of its small businesses (including those in the tech sector), its highly-educated and diverse population, its attractive neighborhoods and, of course, federal spending. Millionaires live here for those reasons just like the rest of us do. If tax rates were the sole determinant of their residency, they would all have moved to Virginia long ago.
Third, Maryland’s working and middle classes have already paid their share. Just last fall the legislature’s special session passed a regressive tax package. Last October, I calculated that the Governor’s original $1.7 billion proposal derived 61% of its revenues from regressive sources like the sales tax hike. The package that was ultimately passed was worse. The Maryland Budget and Policy Institute analyzed the session’s product and found: The poorest 1/5 of taxpayers will pay nearly 0.8% more of their income in taxes. The middle 1/5 will pay half that percentage: just over 0.4%. The wealthiest 1/5 will pay between 0.3% and 0.5% of their incomes in increased taxes. This overall regressive distribution occurs because the regressive nature of the sales tax increase overwhelms the progressive features of the income tax changes.
Now I am not opposing all regressive taxes. The cigarette tax, for example, saves lives. The gas tax encourages mass transit use and fuel efficiency. But when a billion-dollar-plus tax package is comprised primarily of regressive measures, that sends a message about the legislature’s priorities. And the principal reason for relying on regressive taxes like the sales tax was the desire by some legislators – including some from MoCo – to limit income tax increases for the rich. Now some of these legislators are talking about cutting transportation funding as an alternative to the surcharge.
Isn’t relieving traffic congestion also a high priority for this county? If the rest of MoCo’s residents sit in gridlock to protect the rich from paying more taxes, isn’t that an example of replacing one measure that targets Montgomery with another, as David says? MoCo Democrats rightly criticized Governor Ehrlich when he diverted transportation funding to avoid raising taxes. And we should not forget how Virginia has suffered for its inability to finance its transportation infrastructure.
Furthermore, let’s recall the unholy moment in which the computer tax was spawned. The creature was conjured from the abyss by the Maryland Senate for the sole purpose of not raising taxes on millionaires to the extent that the Governor originally recommended. Interestingly, no member of the Senate’s Budget and Taxation Committee will admit to fathering the wailing beast in whatever dark corner of the Senate chamber such acts are usually committed. If the Senate had adopted the Governor’s admittedly imperfect proposal, we would never have the computer tax or the current row over the millionaire surcharge.
I once blamed Senate President Mike Miller for the computer tax and the regressive special session tax package, but he proved me wrong. Back in January, I reported the following from our now-legendary blogger interview with him: Regular readers will recall how I criticized the Senate President for the regressive character of the special session tax package. Leaping into the jaws of the lion, I asked him the following question:
And so Mike Miller is actually to the left of a good part of the MoCo statehouse delegation on this issue. That’s right readers, print those bumper stickers: MIKE MILLER: TOO LIBERAL FOR MOCO.
“The tax package that was passed by the special session collected the majority of its revenues from raising the regressive sales tax. If you could have that one back and do it over, would you have taxed the rich a bit more to give the working people a break?”
Miller did not back down from the sales tax. He described it as “the most regressive but also the most acceptable” of the taxes, claiming that he received little protest on it. “But I wish I could have had more from the income tax.” Miller noted, accurately, that part of the Montgomery County delegation, backed by their County Executive, pushed back against the Governor’s rate increase for the top income tax brackets, thereby limiting the legislature’s ability to raise them. “You need 24 votes to pass something through the Senate and I didn’t have the votes to spare!”
Thursday, March 13, 2008
Is the Computer Tax Here to Stay? (Updated)
The Washington Post reports that Maryland’s Senate has not reached a consensus on how, or whether, to replace the much-despised computer sales tax. But Maryland Politics Watch readers have seen this coming.
Remember the now-legendary blogger interview of Senate President Mike Miller back in January? When we asked him about the computer tax, the Senate President answered, "The computer tax is not a good tax, but it’s $200 million and I’m going to fight to keep it... No one can agree on a replacement." And here’s our report on House Majority Leader Kumar Barve's comments: "The House got rid of the computer sales tax but it came back. It’s bad public policy. It’s unwise to tax businesses that are mobile," Barve stated. "But unless we’re willing to find $200 million in extra revenues, it will be very difficult to get rid of." And why was the computer industry vulnerable? "In politics, when something unpleasant has to be done, it’s usually done to whoever squirms around the least!" Barve noted that Senator Rob Garagiola (D-15, MoCo) had a proposal to replace it with a gas tax, "but that is a non-starter." Added to Mike Miller’s comments, Barve’s opinion indicates that the computer tax is not going anywhere because there is no other way to raise the money.
Mr. Miller’s and Mr. Barve’s political predictions have been proven correct. When the Republicans proposed spending cuts and tapping "unallocated funds" to pay for a repeal, the Senate rejected it. When Senate Democrats proposed an income tax surcharge on the rich, Montgomery County officials opposed it. Time is running out: the current session has less than a month left and the computer tax is due to take effect this summer.
The tragedy is that it didn’t have to be this way. Governor O’Malley never proposed this tax. The House of Delegates did not propose it. And there were other ways to raise the money. An extra point hike in the corporate income tax could have raised at least $100 million and Maryland’s rate would still have been lower than Pennsylvania and D.C., equal to New Jersey and barely higher than West Virginia and Delaware. Combined reporting on corporate income taxes could have raised $25 million. Progressive Maryland believes it could have been worth $100 million. The legislature could have kept the Governor’s original higher income tax rates on individuals making $150,000, raising perhaps tens of millions more. And the legislature could have aggressively gone after tax-cheating employers but so far has not done so.
Instead, we are left with a looming, devastating tax on a knowledge-based industry critical to the state’s future. Everyone hates it. But no one has figured out how to get rid of it. Surely the Democrats in Annapolis can do better than this.
Update: The Sun reports that a surtax on millionaires is gaining ground. Democratic Senator Verna Jones's (D44-Baltimore City) proposal would raise $230 million by instituting a surcharge rate of 6% on incomes between $750,000 and $1 million and 6.5% on incomes above $1 million. But Montgomery County Executive Ike Leggett has written in opposition to the plan.
Update 2: The Governor has come out in favor of replacing the computer tax with the surcharge. However, Democratic Senator Robert Zirkin (D11-Baltimore County) has proposed to repeal the computer tax if the slots referendum passes. He also favors cutting transportation projects.
Senator Zirkin, I know my Montgomery County delegation is split on taxing the wealthy. But I would hope that all of them would stick together on opposing transportation cuts. All they hear is how horrible traffic congestion is from both their constituents and our County Council. Good luck in getting our eight State Senators to cut State Highway and transit projects in our county.
Wednesday, January 16, 2008
Former District 39 Delegate Slams Tax Hikes
Joan F. Stern of North Potomac, a Democrat who served in the House of Delegates from 1999 to 2007, attacked the state's recently-passed tax package in a letter to the Gazette.
In the letter, Stern rages against her former Democratic colleagues, thundering, "County and state officials need to rethink their philosophy and understand that most people are no longer willing to put up with elected officials who keep increasing their taxes, especially when services are being cut. I have seen the light. How about the rest of you?"
After complaining about "expensive new mandates in a declining economy," Stern concludes, "No wonder Maryland had a net loss of 35,000 people to other states. It is time for a reality check."
Stern was not included on District 39's incumbent slate in the 2006 election. Nor did she make the Montgomery County Education Association's Apple Ballot. As a result, newcomer and MCEA-backed Saqib Ali defeated her by 1,238 votes. Are Stern's complaints about taxes a prelude to an attempted comeback?
Tuesday, January 15, 2008
The Governor Pays the Price for Miller's Advice
According to the Baltimore Sun, Governor O’Malley now suffers a 35% approval rating, the lowest since the end of the Glendening administration. Why? Two words: tax hikes. And another two words: Mike Miller.
Reacting to the state’s $1.7 billion general fund deficit, the Governor proposed a tax hike and spending cut plan prior to last fall’s special session. While, as David Lublin points out, no one enjoys either tax hikes or spending cuts, some parts of the plan were more unpopular than others. The features enjoying the most voter support were tobacco tax hikes (69% in a 9/28/07 Washington Post poll), slots (68%), corporate income tax hikes (66%) and income tax increases on the rich (62%). The feature with the least support was the sales tax hike (29%). The Governor tried to soften the tax hikes with a property tax cut.
But Senate President Mike Miller had other ideas. The Senate junked combined reporting, a corporate tax reform that would have made it more difficult for corporations to reduce Maryland taxable income by assigning it to other states. The Senate reduced the top rates in the Governor’s income tax proposal, thereby making it less progressive. And the Senate eliminated the Governor’s property tax cut. So three of the Governor’s most popular reforms were reduced or taken off the table. While the final package was a compromise with the House that restored some of the top income tax rate increases, the contribution of the Senate ensured that the outcome was less progressive than it otherwise could have been.
The result? The hugely unpopular sales tax increase accounted for more than $700 million of the final $1.3 billion tax package, the primary reason cited by the Maryland Budget and Tax Policy Institute in labeling it regressive. And Baltimore Sun poll respondents labeled the tax package “unfair” by a margin of 51-33%.
Now I was not a big fan of the Governor’s original proposal but in retrospect, it was far superior to the Senate's proposal. Unfortunately for the well-meaning but embattled Governor, the price of following Mr. Miller’s advice is the good will of the Maryland voter.
Monday, January 14, 2008
Tough Choices and Predictable Poll Drops
When the economy booms and revenue coffers bulge, state elected officials can hand out tax cuts and still increase spending, making voters happy and looking brilliant as they do it.
It is a lot harder when the economy contracts and revenues fall short. Requirements in most states to balance the state budget every year impose much greater fiscal discipline and make governing much more difficult.
Unlike at the federal level, elected officials have to make choices and can't simply rack up new debt on the federal credit card. States have to raise taxes and cut spending.
Unsurprisingly, voters don't tend to like either of these options. Support for the Governor has dropped according to the Baltimore Sun:Just over a year after O'Malley won 53 percent of the vote, only 35 percent of voters approve of the way he's handled his job.
Forty-five percent disapprove of O'Malley's job performance and twenty percent don't know. Voters aren't thrilled with the new taxes imposed by the State during the special session:In a state where education is perennially named by residents as the most important issue, high taxes have skyrocketed to the top of voter concerns, with 28 percent identifying it as the most pressing problem. . . .
Blair Lee of the Gazette cites a similar Gonzales Research Poll in his recent column. Lee doesn't bother to suggest how else the State might have coped with the budget crisis. Or if voters might have liked it better.
The poll found that opposition to the tax package is intense, with 39 percent of voters saying they disapproved strongly. Of the 32 percent who approved of the outcome, 20 percent did so "not so strongly." . . .
Asked to set aside their own personal feelings about the outcome and comment on the general fairness of the tax increases, 51 percent said they were unfair, compared with 33 percent who said the package was fair.
One doubts that major budget cuts proposed by the Republicans would have been better received than the tax increases. Many appeared unhappy with the budget cuts that occurred despite increases in the sales and income tax as well as the prospect of slots.
Thursday, January 10, 2008
Mike Miller's Turn
Senate president Mike Miller has made a change in the subcommittee structure of the Senate Budget and Taxation Committee, with at least one person losing a subcommittee chairmanship.
In recent years, most of the work has been divvied up among three subcommittees (with two others having less of a caseload). Now, those three subs have been reduced to two.
The work of the Health and Human Services Subcommittee is being subsumed into a new Health, Education, and Human Resources Subcommittee. Sen. Ed Kasemeyer, chair of the old subcommittee dealing with education issues, will be chair of the modified subcommittee.
What adds a little political drama to this bureaucratic change is the connection to the recent special session: The chair of the now-defunct Health and Human Services Subcommittee was Sen. Rona Kramer, who voted against the tax bill that Miller was pushing. I can't help but wonder if there is a connection between her vote then and the current restructuring.
Wednesday, December 19, 2007
Analysis of Progressivity of Special Session
The Maryland Budget and Tax Policy Institute (.pdf) views the results of the special session as regressive but says that Maryland still does better than other states.
Some of the key conclusions are:Most of the revenue in the special session’s package comes from increasing the sales tax. This affects all consumers alike if their buying patterns are the same. But they aren’t. Lower-income taxpayers expend more of their income on purchases than higher income taxpayers do (they save less). And they spend more of their income on goods, which are generally subject to the sales tax, compared with services, which are generally not taxed. The Department of Legislative Services estimates that a poverty-level taxpayer pays almost twice the share of her income in sales tax as a household making $100,000. . . .
The Institute on Taxation and Economic Policy estimates that the overall effect of the tax package is regressive.5 The poorest 1/5 of taxpayers will pay nearly 0.8% more of their income in taxes. The middle 1/5 will pay half that percentage: just over 0.4%. The wealthiest 1/5 will pay between 0.3% and 0.5% of their incomes in increased taxes. This overall regressive distribution occurs because the regressive nature of the sales tax rate increase overwhelms the progressive features of the income tax changes. . . .
Maryland’s tax system does more than most states to spare citizens living in poverty. The very poor are protected from paying state income tax. For example, for a two-parent family of four, no tax is due in incomes below $31,000. Only six states have higher tax thresholds. For working families, Maryland provides a refundable earned income tax credit (EITC). As a result, a family of four with wage earnings and the poverty level of income would actually receive a $423tax refund to supplement their earnings.
Maryland relies more on income tax revenue than most states: 42% versus the national average of 35%. The flip side of this fact is that Maryland relies less on the general sales tax: 23% versus the national average of 32%. Since the sales tax is less responsive to incomes, it hits lower-income families harder. Maryland’s revenue system draws less from this regressive tax than most other states.
Tuesday, November 20, 2007
Peter Franchot: Speaking His Mind
No on will accuse Comptroller Peter Franchot of keeping too quiet for the sake of being a team player. Oddly for someone in charge of promoting the State's fiscal health, Franchot denounced the special session to balance the budget as premature. Unlike past comptrollers, Franchot even refused to allow his staff to participate in budget discussions during the special session.
Franchot often mentions his long experience as a member of the Appropriations Committee of the House of Delegates. I doubt if any other long-term member of that Committee learned that the best way to influence the State's budget is not to participate in drafting it. One wonders if his unwillingness to participate in work was the source of his well-known reputation as a "show horse" rather than a workhorse.
Franchot's unwillingness to participate in the special session has not stopped him from denouncing the outcome:
Maryland Comptroller Peter Franchot (D), a vocal critic of the special session, said the tax package is "regressive" and "may damage the Maryland economy, which is in a volatile and soft position right now."This statement probably makes Franchot the first comptroller in Maryland history to talk down the State's economy. However, the real kicker is that Franchot admitted immediately that he has no real idea about the impact of the budget. As it turns out, his office hasn't analyzed it yet:
Franchot, the state's chief tax collector, said his office is reviewing the laws and will soon release a fiscal analysis as it prepares to implement the new tax measures Jan. 1. He said it is too soon to know the full impact.
"We're still searching for the black box," Franchot said, likening the process to "when a plane crashes and you go to find the black box to get the data."
Progressive or Regressive?
Whether the overall budget is regressive or progressive remains a matter of debate:
Nick Johnson, a fiscal director at the Center on Budget and Policy Priorities, said the impact of the laws will be "a little uneven across the income scale."
"I think low-income families are going to take a certain amount of a hit," Johnson said. "There's no way around that. They're going to get hit worse than they would have under the governor's original plan." . . .
Sean Dobson, executive director of Progressive Maryland, said the legislative package is "a victory for working families."
"While there is some regressive stuff in there, the overall package represents a win," Dobson said. "What we have now is an improvement over the status quo."
Of course, this debate really remains of interest to insiders. I suspect that most people will dislike "taxes" going up and care less about the impact on the rich or the poor. Remember, America has long been a land that celebrates the wealthy as "winners." Few complained about the relatively flat state income tax during the election campaign.
Monday, November 19, 2007
Contacting Our Legislators
Many of us have strong feelings about the issues addressed in the special session that just ended. Like many of the people reading this, I told anyone who’d listen what I wanted my elected officials in Annapolis to do.
But I didn’t tell them what I wanted them to do – at least, I didn’t tell my three delegates. And that makes me wonder about other people.
Did you contact your delegation in Annapolis? And do you think your action or inaction made any difference on how they voted?
I live in District 18, and I wish I had done more.
On the good side, I’ve spoken numerous times with Senator Rich Madaleno about taxes and slots, and I also called his office several times during the special session. He and his staff were pretty clear on what I thought. I know where he stands, too. We are generally in agreement, and I trust him to do the right thing – which includes knowing when and how much to compromise.
But I did not contact Delegates Ana Sol Gutierrez, Jane Lawton, or Jeff Waldstreicher.
Why not? I’m not 100% sure. To some extent, it’s because I know their politics and don’t feel that they need to hear from me. I generally trust them to do the right thing while wading through the thicket of numbers and making the compromises that are part of good legislating.
But on the income tax issue, I really should have called them. Since I wanted to see a more progressive income tax plan, I was especially upset to read that that many members of the Montgomery County delegation were insisting on a less progressive one. And I had no idea what role, if any, the District 18 delegates had in pushing for that change.
Yet I didn’t ask. And I didn’t bother to let the three delegates know what I thought about it, either before or after the deed was done.
Does it matter? I hardly have an inflated view of my importance - I’m just one person, a plain old neighborhood activist who actually has a pretty good relationship with the delegates. And I’ve shared my opinions with them on other matters.
Would calling them early on have had an impact on their thinking or on their votes? I don’t know. But not calling them was a sure-fire way to not have an impact.
What about other people? Did you contact your legislators? Do you think it made a difference?
More generally, could those of us in Maryland’s liberal community have worked more effectively for a more progressive revenue package? Or do we simply not have sufficient numbers among the electorate or in the General Assembly to have accomplished our goals?
We're Watching: Slots Vote Analysis
Passing slots through the House of Delegates was no easy feat as a previous post outlined. The key vote on the bill passed 86-52; constitutional amendments require 85 votes so slots proponents had only one spare vote. There were also two "poison pill" amendments offered prior to the critical vote on the amendment by slots foe Del. Luiz Simmons (D- 17) designed to make it difficult to reconcile the bill with the Senate and for a referendum to pass.
The first Simmons amendment would have changed the bill to require a county (or Baltimore City) to vote in favor of slots during the referendum in order for slot machines to be placed in that county (or Baltimore County). This amendment was a brilliant strategic move because it altered the referendum to make it one on slots in each county.
In Montgomery, polls suggest that people are much more in favor of allowing slots elsewhere in Maryland than in Montgomery. My guess is that many people elsewhere in the State feel the same way, so this amendment would help juice the anti-slots vote. The amendment failed 61-67 with 13 delegates not voting (only 5 are recorded as "excused"). Note that the delegates who didn't vote held the balance on each of the two Simmons amendments.
This vote was probably the hardest vote for slots supporters because it required them to vote against allowing their constituents to prohibit slots directly in their county through the referendum vote. I'm sure some of Del. Simmons's pro-slots colleagues will take opportunities over the next several years to remind him exactly how much they deeply appreciate his passion on this issue.
The second Simmons amendment would have prohibited people associated with the gambling industry from making campaign donations. This amendment failed 61-66 with 14 delegates not voting (again, only 5 are recorded as "excused").
Based on the outcome of the three votes, it is clear that many delegates did not cast consistent pro or anti-slots votes. Some Democrats who planned to vote against the constitutional amendment probably didn't want to vote for the Simmons amendments in order to avoid: (1) further angering the Governor and the Speaker (not to mention MCEA, which was strongly in favor of the bill), (2) bringing an ignominious end to the special session which would have reflected badly on the Democratic Party, and (3) to help out the Governor early in his term even if they felt that they couldn't vote for slots.
Some Democrats who voted for one or both of the Simmons amendments and then for the constitutional amendment may have wanted to allow the people to decide but then also to give people more control over whether or not slots come to their county. Like slots opponents who voted against the constitutional amendment, they may also worry about the financial might of the gambling industry. Nonetheless, they undercut whatever credit they earned with the Speaker and the Governor by voting for either amendment.
Some might argue that Simmons amendment supporters who voted for the constitutional amendment may have wanted political cover against an anti-slots backlash. I find this unpersuasive as it it hard to see these legislators receiving many thanks from slots opponents after having voted for the constitutional amendment--the central vote on the issue which required 85 votes to pass and could have been defeated if just two delegates changed their votes.
I wonder if some of the delegates who didn't vote despite being present simply felt extremely heavily pressured from both sides and didn't come to a decision in time during the grueling floor session. They may have also wanted to save the Governor from defeat in special session even if they voted against the constitutional amendment.
No doubt there are many other explanations for various vote combinations which I haven't given here, though I have a feeling I'll be hearing some of them soon.
Let's see how Montgomery's delegates voted:
District 14
Del. Herman Taylor played a critical role in keeping the slots bill alive by not voting on either of the two Simmons amendments though he voted against the constitutional amendment. Del. Anne Kaiser cast consistent pro-slots votes. Del. Karen Montgomery is recorded as "excused from voting" for all three votes.
District 15
Dels. Kathleen Dumais and Brian Feldman voted against the first Simmons amendment on requiring a local majority for slots in the referendum for slots to be placed in that jurisdiction. They both also voted against the second Simmons amendment on campaign finance before voting for the constitutional amendment. Del. Craig Rice cast consistent pro-slots votes.
District 16
Del. Bill Bronrott voted for both Simmons amendments before voting for the constitutional amendment. Del. Susan Lee and newly appointed Del. Bill Frick cast consistent pro-slots votes.
District 17
Del. Simmons shocked no one by voting against the constitutional amendment and for both of his own amendments. Equally unsurprising were the consistent votes cast for slots by Del. Kumar Barve, the House Majority Leader and a member of the leadership. Del. Jim Gilchrest voted with Barve (i.e. against Simmons) on all three votes.
District 18
Like Del. Taylor in District 14, Del. Jeff Waldstreicher voted against the constitutional amendment after having not voted on either of the Simmons amendments and thus helping to keep the slots bill alive. Dels. Jane Lawton cast consistent pro-slots votes. Del. Ana Sol Gutierrez voted for the slots amendment but also for the Simmons amendment on campaign finance.
District 19
Before voting for the constitutional amendment, Del. Henry Heller voted for the first Simmons amendment to require a local majority for slots in the referendum to have slots in that jurisdiction. Del. Heller didn't vote on the second Simmons amendment on campaign finance, tacitly helping prevent that amendment for passing. Del. Roger Manno voted the same as Del. Heller except that he cast a negative vote on the second Simmons amendment. Del. Ben Kramer cast consistent anti-slots votes.
District 20
Del. Heather Mizeur voted against the constitutional amendment and for the first Simmons amendment. However, she also voted against the second Simmons amendment. Del. Tom Hucker voted differently from Del. Mizeur on all three votes. He voted for the constitutional amendment having voted against the first Simmons amendment. However, Del. Hucker voted for the second Simmons amendment on campaign donations from slots interests. Del. Sheila Hixon, the Chair of the House Ways and Means Committee, cast consistent pro-slots votes.
District 39
Like Dels. Mizeur and Hucker in District 20, Dels. Saqib Ali and Charles Barkley cast opposed votes on all three of the slots bills. Del. Ali voted against a constitutional amendment and for the second Simmons amendment. However, he also voted against the first Simmons amendment requiring a local majority for slots to be placed in that jurisdiction. Del. Barkley voted for the constitutional amendment and against the second Simmons amendment. However, Del. Barkley voted for the first Simmons amendment. Newly appointed Del. Kirill Reznick cast consistent pro-slots votes.
Update: Del. Heather Mizeur pointed out gently via email that I had incorrectly reported her vote on the two Simmons amendments as well as confused the order of the votes. I appreciate the correction and have altered the post accordingly. Thanks Heather.
Cranky Gazette
All of the Gazette columnists dislike the outcome of the special session for totally different reasons. Blair Lee writes that Montgomery got taken again by caving on the income tax since its revenues come disproportionately from Montgomery County. However, Blair Lee completely ignores the rest of the tax package, and one should assess it based on the total impact, not just one tax.
My colleague, Allan Lichtman, attacks the Senate, and specifically senators from Montgomery, for exactly the opposite reason. Allan thinks the tax bill is not progressive enough:
Lichtman is right that the affluent have benefited from the Bush tax cuts and essentially argues that the proposed tax bite on them was so small that they would notice it. The latter part of this argument was undermined by the backlash against the bill. They appear to have noticed. Opponents also argue that raising federal taxes doesn't cause Maryland to suffer the same loss in competitiveness vis-a-vis other states, so the place to seek more progressive taxation is in Congress--not the General Assembly.State Senators from Montgomery County played a major role in dismantling proposals for a progressive state tax structure. Where was Brian Frosh of Bethesda, the progressive conscience of the Senate for so many years? Where was freshman Sen. Jamie Raskin of Takoma Park, who promised in his campaign against veteran incumbent Ida Ruben to be a progressive hero in the Senate? In what is likely the most important vote they will cast in their four-year term, both senators voted for the regressive tax package, along with nearly every other senator from Montgomery County. Commendably, Frosh and Raskin voted against the slots proposal.
It is understandable that senators from Montgomery County would want to protect their constituents who are relatively more affluent than residents of other jurisdictions. But they should not be protecting the 5 percent to 10 percent of the county’s richest citizens at the expense of everyone else. The rich have already benefited enormously from the tax cuts pushed through Congress by the Bush administration and today rake in more of the national income than at any time since the beginning of the Great Depression in 1929.
I discovered a couple of interesting factoids:
(1) Maryland has the 14th most progressive tax structure in the nation according to at one analysis (located using that scientific method of "doing a google"). Maryland is more progressive than such liberal paragons as Massachusetts (27th) and New York (26th). Virginia is just one notch below us in 15th place. Delaware is first in the nation in terms of progressivity but it has very few taxes at all.
(2) Maryland's tax structure is mildly regressive--the tax structure of all but six states is regressive with many being substantially more so than Maryland. Of course, federal taxes, which loom much larger than state and local taxes, shape the overall structure of the tax burden.
Sunday, November 18, 2007
Special Session Winding Up
The Senate voted to accede to the slots proposal adopted by the House of Delegates. The conference committee between the two houses has also agreed on a compromise on the income tax hike:
The compromise plan would make the individual income tax more progressive, would increase the sales and vehicle titling tax rates from 5 percent to 6 percent, and would increase the corporate income tax rate from 7 percent to 8.25 percent.The General Assembly also agreed to extend the sales tax to computer services to generate $200 million per year but set the new tax to expire after five years. Finally, legislators asked Gov. Martin O'Malley to cut his proposed budget by $550 million.
In a compromise between the chambers, legislative leaders agreed to adding three new income tax brackets for high-earners, changing a tax structure in which most filers qualify for the top rate of 4.75 percent.
Under the proposed new structure, individuals would pay 5 percent on taxable income above $150,000 a year, and couples would pay that rate on taxable income over $200,000 a year. A 5.25 percent bracket would apply to income greater than $300,000 a year for individuals, and $350,000 a year for couples. All income above $500,000 a year would be taxed at 5.5 percent.
The Baltimore Sun has a photo montage if you want to make an Olympic moment out of the closure of the special session.
Update
As of very early in the morning, the Republicans were filibustering successfully the tax bill in the Senate. They were joined by five Democrats: Sens. Brochin, Della, Forehand, Klausmeier, and Stone. The real surprise on the list to me is Montgomery Sen. Jennie Forehand (D-17), an affable woman who represents a safe Democratic district and isn't known for allying with the Republicans. Baltimore City Sen. George Della (D-46) also represents a safe Democratic district but has a poor relationship with Senate President Mike Miller and is probably enjoying the chance to make his life more difficult.
Update II
The tax package passed at 2:36am this morning.
Why Progressives Should Not Punish Legislators Who Voted for the Slots Referendum
by Adam Pagnucco
In two of the most critical, hotly contested votes in at least fifteen years, Maryland’s state legislators recently voted to send the issue of slots to a referendum. Anti-slots voters howled with betrayal. Gambling bosses munched their cigars in glee and stroked the cash in their wallets. The forces of evil massed at the gates of I-95, poised to let loose the dogs of addiction and vice into the Free State. So naturally, liberals should punish the traitorous legislators who signed Maryland over to the armies of immorality. Right?
Wrong.
Here are five reasons progressives should not punish legislators who voted for the slots referendum:
1. A special session collapse would lead to more tax hikes and/or spending cuts later
Throughout the special session, Senate President Mike Miller repeatedly warned that failure to pass a slots referendum might lead to general impasse. If that happened, the legislators would have to take up deficit reduction again in the general session in early 2008. But since new revenue collections would be delayed from the end of 2007 to the summer of 2008, the hikes would now have to be about $500 million greater. The most likely source of further tax hikes would be related to the sales tax as Montgomery County’s delegation would no doubt block any further attempt to raise income taxes on the rich. Alternatively, spending cuts would inevitably affect education aid and state government staffing. No wonder labor unions were urging wavering legislators to support the referendum.
Would more sales tax hikes and reduced education spending really be in the interest of progressives? Of course not, so the legislators faced a “lesser-of-two-evils” choice. In fact, this pattern of decision-making was the hallmark of the entire special session.
2. Relationships with the Governor and the leadership are important
A politician’s effectiveness is to a great degree based on relationships with others, the pursuit of mutual gains and resulting negotiating leverage. In Annapolis, the most important relationships are with the Democratic leadership and the Governor’s office. The leadership has exclusive control of committee assignments, committee chairmanships and, by extension, bill appearances on the floor. The Governor has unusually tight control over budgeting as well as the giant apparatus of state government. Every legislator has to negotiate this set of relationships to accomplish his or her priorities as well as to meet the needs of his or her district. Politicians without relationships become pariahs, howling at the moon while the rest of the pack feasts on the night’s catch.
The slots referendum vote was, to this point, the most important vote in the Governor’s political career. It was also a test of the Democratic leadership’s ability to work together (not always an easy task between the two chambers) and clear the table of troublesome budget problems prior to the next round of elections. Any legislator who rejects both the Governor and the leadership in their hour of greatest need runs the risk of ruining their ability to deliver grants, aid, transportation projects and general services needed by their district. After all, should such a legislator later approach the Governor for help, he or she might well be the recipient of an icy glare and a cool, “Where were you when I needed you?”
Again we see a “lesser-of-two-evils” decision. Don’t blame those legislators who acted to preserve their effectiveness on other liberal priorities and constituent service.
3. No one demonstrated ideological purity
One of the great ironies of the special session is the behavior of some of Montgomery County’s “liberal” delegation. The tax hikes that encountered the greatest resistance among such members were the Governor’s increased income tax rates on Maryland’s wealthiest residents. Their opposition was based on competitiveness with Virginia, but why shouldn’t the same arguments apply to the sales tax or the tobacco tax? Why the selective outrage?
Some of the legislators who opposed slots worked to reduce the added taxes on the rich in the Governor’s income tax proposal and did not utter a peep of protest against the $730 million sales tax hike – yet they still call themselves “progressives.” If you are looking for ideological purity, you may find it in church, but you will not find any in Annapolis.
4. Slots will keep coming back unless they are defeated with a referendum
Slots have been on the verge of passing for years. In 2005, both chambers of the legislature approved slots bills but could not reconcile them. Anti-slots activists have known a painful truth for years: all it takes is a handful of changed votes to get a pro-slots majority in the legislature. Given the rates of turnover in state legislative elections, it is possible that sooner or later slots will finally pass.
Everyone knows that a vampire will not die until a stake is driven through its heart. Defeating slots at the ballot box may be the only way to destroy the creature once and for all.
5. Heed the people
There have always been two sets of arguments around slots. First are the economic arguments. Some consider gambling fees a voluntary levy (putting aside addictions) and therefore superior to involuntary taxes. Others say gambling revenues are at least matched by health and welfare spending (and more intangible costs) associated with remedying the problems of addiction. Second are the moral arguments. Some see gambling as a victimless crime, or not a crime at all, and say the state has no business outlawing it. Others criticize gambling as inherently immoral and destructive of our culture.
Those who argue against a referendum are implying that the citizens of Maryland are too ignorant to weigh the economic arguments and are too corrupt and/or weak-minded to evaluate the moral arguments. These sorts of decisions are beyond the capabilities of average citizens and can only be decided by those who manage to get elected. Is this really what progressives think about the masses?
Why should progressives fear democracy? If the reasons for opposing slots are truly superior, Maryland’s progressive community is more than capable of triumphing at the ballot box. And victory is entirely possible. While polls suggest that a majority of Marylanders favor slots, anti-slots activists are much more motivated than pro-slots voters. Liberals may very well win by getting out their vote in anti-slots strongholds like Montgomery County, Prince George’s County and Ocean City. If that happens, perhaps those who voted for the referendum should be thanked by allowing the people to slay the monster once and for all.
Friday, November 16, 2007
Madaleno Special Session Update
From the Sen. Rich Madaleno:
Progress on the governor’s comprehensive revenue package has been put on hold in the Senate as we await action in the House of Delegates. The Senate President has announced that we will not take further action until the House completes its work on slots. In fact, as I write, the House is debating the slots referendum proposal. It remains unclear at this point as to whether the House will take any action on the companion bill to regulate and administer slots. Fortunately, the Senate President also announced today that he will not scuttle the entire revenue package should the slots bill fail in the House. Should that be the outcome, the slots proposal will be brought up again during the upcoming 2008 regular session.I think Rich should endorse Andy Harris. It would probably do far more to aid Wayne Gilchrest than the ads paid for by LCV.
My colleagues from the Baltimore suburbs remain convinced that slots are essential to selling the revenue plan to their constituents. They are criticized for being tax-and-spend liberals. They believe slots softens this opposition. Interestingly, in our county, those of us who have supported the governor’s plan and the Senate compromise package have been criticized for abandoning our liberal values. It is an interesting dichotomy. The Senate caucus has both liberal and moderate factions. Progress is made only when the two find common ground, as we did with the final package.
In the meantime, the Senate is scheduled to reconvene at 11 a.m. on Saturday, and maybe again on Sunday. This weekend appears to be the deadline for action as many people have travel plans for the Thanksgiving weekend.
The Department of Legislative Services has prepared a useful summary document comparing the actions of both chambers with the governor’s initial plan. It is available at www.mlis.state.md.us under the “budget documents” tab. The major issues of disagreement concern the individual income tax and corporate tax policy. The Senate bill expands the sales tax to computer services, while the House bill has a higher corporate income tax rate and a requirement for combined reporting for corporations. Because no bill from either chamber has yet passed the other chamber, there will be no formal conference committee as is the custom for most measures. Apparently, the leadership of the various committees has been meeting to resolve differences in the bills.
On a different topic, there is a hotly contested race for the Republican nomination for the US House district that stretches from the Baltimore suburbs down to Ocean City. State Senator Andy Harris is challenging the incumbent Wayne Gilchrist. The League of Conservation Voters is running ads against Harris, one of the most conservative senators, in the Baltimore market that attack him for supporting “$100 million for dance halls in MONTGOMERY COUNTY while opposing needed funding for the Chesapeake Bay.” I would assume they are talking about the Strathmore Performing Arts Center and the Glen Echo Park’s Spanish Ballroom. It is interesting that an advocacy group would pick these two projects to attack a Baltimore area legislator. In the end, he voted for them as part of the entire capital budget not as individual projects. I am confident he would have opposed both if debated individually.
The end is near (I hope). I look forward to updating you with the final outcome of this special session.
Dueling Income Tax Plans
The Baltimore Sun produced the above chart showing the three income tax plans currently on offer from Gov. O'Malley, the Senate, and the House. While the differences between the House and the Senate plans seem relatively small to me, reconciling them may not be so easy. Montgomery senators do not appear unified on this question:
Most of the Montgomery County senators who voted in favor of that chamber's tax bill last week said the House version hits upper-income taxpayers too hard, although the House did not go as far as Gov. Martin O'Malley.Combined reporting also remains an issue though that appears likely to be resolved in favor of the House's plan to close the loophole:
Sen. Jennie M. Forehand, a Montgomery County Democrat, said she did not think the top income-tax bracket, for those with incomes more than $500,000 a year, should be higher than 5.5 percent.
"My district has a lot of high-tech, biotech companies that are expanding and trying to recruit some of the top scientists and business people," she said. . . .
Sens. Brian E. Frosh and Michael G. Lenett, both Montgomery County Democrats, said they prefer the House version.
"It will be a source of controversy within the Senate," Frosh said. "There are some folks, especially those from Montgomery County, who think we should take it easier on well-to-do people."
The House included "combined reporting" in its tax bill.
The House approved O'Malley's proposal to close a "loophole" - referred to as "controlling interest" - that enables some corporations to avoid recordation and transfer taxes by making their real estate part of a limited liability company.
The Senate amended the governor's plan to raise the threshold of what defines a company covered by the tax law change, changed the method of valuing property from the sale amount to the assessed value, and exempted all deals before Jan 1.
"The Senate amendments provide a substantial loophole in the effort we are trying to resolve," said Sen. Richard S. Madaleno Jr., a Montgomery County Democrat who supports the House version.
Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, said he expects a compromise with the House over the personal income tax proposals and the rest of the tax package.
Rolling the Dice on Slots Today?
The House of Delegates is expected to vote sometime today on slots. Apparently, the holdup is being caused by Republicans who were for a referendum before they were against it:
House Speaker Michael E. Busch said last night that the chamber's leaders and O'Malley were working to get the necessary votes. He said that he didn't know how many more votes they needed, but that several Republicans who had said they would vote for the bill have apparently decided against it.It seems clear that the special session will not be put out of its misery today as a conference committee would be needed to reconcile the budget and slots bills. The House has now shifted away from its strategy of passing an identical slots bill to the Senate as it cannot muster the votes for that approach.
"They seem to be wavering on giving the people a vote on slots through a referendum," the Anne Arundel County Democrat said.
However, today may well be the key day of the special session. I imagine that they can delay and keep hunting for votes. At some point, House leaders are going to have to see if they have the 85 votes needed to pass slots. One can only twist this pretzel of a bill so many times to see if enough people are willing to bite.
