March 9, 2012

Maryland’s General Assembly has recently been discussing a “doomsday” budget consisting entirely of spending cuts. In doing so, legislators have unintentionally flipped the historical meaning of “doomsday,” and its relation to taxes, on its head.

During the late 11th century, William I, the Norman conqueror of England, needed a way to assess the value of properties in the land he had just invaded. He commissioned a large-scale survey, and his tax assessors recorded their judgments about the value of land in a large volume, the Domesday Book — so called because its assessments of property value, and thus the taxes owed to the king, were immutable as Doomsday. Thankfully, in modern times we can appeal property tax assessments, but in medieval England, the tax assessor’s judgment inspired the same feelings of fear as the Day of Judgment.

Thus it is with some irony that a budget plan premised on cutting spending would be called a “doomsday” budget. Presumably the General Assembly believes that the opposite — a budget premised on “revenue enhancements” (or, taxes) — will stave off Maryland’s day of reckoning.

There is hope, we’re told. Fiscal apocalypse is not inevitable. We can avoid disaster; all that’s required is to ensure that everyone is paying his or her fair share. From those who have earned much, more will be demanded. Surely the top 1 percent can afford to pitch in?

What about the top 22 percent? The top 25 percent? The top 62 percent? Those numbers represent conservative estimates of the fraction of filers who would face higher taxes under the respective governor’s, House and Senate proposals for tax increases.

The cost of keeping Judgment Day at bay isn’t cheap. Under Gov. Martin O’Malley’s proposal, the average tax increase would be $301 due to limitations on itemized deductions, plus $276 due to the reduction or elimination of personal exemptions. Add to that $90 for the gas tax increase (which, despite a public outcry, has not yet been tabled), $30 for the flush tax increase and the possibility of increased local income tax rates, and the result is that hundreds of thousands of Maryland residents could face tax increases of $700 or more.

The administration’s plan actually functions as a disincentive to earn more. Unlike marginal tax rates, which kick in only on income above a certain threshold, the governor’s plan — by reducing the deductions and exemptions taxpayers can claim if they exceed set amounts of income — effectively becomes a penalty for earnings slightly above threshold amounts. Under this tax policy, it makes more sense to earn only $100,000 rather than a little more. In many cases, earning that extra bit would result in owing additional taxes that outweigh the additional income.

One hundred thousand dolllars may sound like a lot, but it’s worth remembering that many Maryland residents are highly educated and highly compensated. Maryland’s overall median household income exceeds $70,000. The median in Montgomery County is $93,000, and in Howard County, $103,000.

On top of it all, the centerpiece of the governor’s cost-containment strategy of shifting $239 million in teacher pension costs to the counties doesn’t restrain costs at all. It simply hands the bill to someone else. Precisely this same approach is being taken with the proposed tax increases: passing the buck. Marylanders have spoken out against the gas tax increase. We won’t accept an income tax increase, either. We have a hard time believing it’s the end of the world.

The writer is a senior fellow at the Maryland Public Policy Institute in Rockville.

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