The Tax-Exodus Bogeyman
Scare Tactics in the Debate Over the O'Malley Plan

Sunday, September 30, 2007

Fearmongers aplenty are setting up shop as Maryland gears up for the grand debate over Gov. Martin O'Malley's plan to erase the state's budget shortfall.

The governor's proposals have encouraged Marylanders eager for progressive solutions that can raise needed revenue -- and, at the same time, reform a Maryland tax structure that winks at wealthy and big-time corporations.

These same proposals are deeply offending lawmakers for whom such wealthy interests are some of their most prized constituents.

The chairwoman of Montgomery County's Senate delegation has challenged the governor's proposal to raise the top state income tax rate from the current 4.75 percent to 6.5 percent on income over $500,000. The hike, she said, would drive affluent Montgomery County residents into Virginia, where taxes are lower.

"Northern Virginia is a very appealing place," Sen. Rona E. Kramer (D) stated, "and it's right across the river."

Business lobbyists are making a similar case against the governor's proposal to shut the most gaping corporate tax loopholes. Taking that course, the Maryland Chamber of Commerce charges, would force big companies to "simply shift their jobs and investments to other states."

In other words, residents of Maryland, be afraid of the governor's plan. Be very afraid.

Afraid of what? Let's get serious here. The governor's modest tax hike on high incomes will cost a couple making three-quarters of a million dollars a bit over $7,000, or less than 1 percent of that couple's annual income.

Put this $7,000 in perspective. America's richest 1 percent -- taxpayers with 2007 incomes higher than $450,000 -- will this year save an average of $52,000 on their federal taxes, thanks to Bush administration tax cuts enacted over the past half-dozen years.

The bottom line: Marylanders in the nation's richest 1 percent, even with the adoption of the governor's proposal, would still be $45,000 a year ahead of where they would be if they were still paying taxes at pre-George W. Bush rates. Does anyone really believe that these families will leave Maryland because these savings should be $7,000 higher? We have wealthy Maryland families that spend more than $7,000 a year on landscaping.

In real life, studies show, people choose where to live based on a wide range of quality-of-life factors that go far beyond their tax bills. Most of Maryland's affluent understand that their state and local governments need adequate revenue to provide quality-of-life services.

Corporations, by the same token, also look at a variety of factors, not just tax policy, when they decide where to locate. And on the corporate tax front, meanwhile, the governor has proposed a modest tax increase. But more important, he wants corporations to meet their tax responsibilities.

Many currently do not. According to the state comptroller, nearly half of major companies doing business in Maryland -- 64 of the top 132 -- paid no state corporate income taxes whatsoever in 2005. Zero. The "combined reporting" reform that O'Malley supports would significantly cut down on this tax avoidance.

Will large companies flee Maryland if this reform becomes law? Don't be silly. The national companies currently playing games with Maryland's existing tax law are not going anywhere. Twenty-one states have adopted "combined reporting," and not one of them has experienced a corporate exodus.

Maryland's working families, unlike our wealthy, don't have the luxury of making idle threats. They cannot afford to move on a whim, and everybody knows that. If the threats of the wealthy are taken seriously and they are let off the hook, however, working families will bear the overwhelming bulk of the burden for putting the state's fiscal house in order.

In fact, the governor's revenue plan, even with its tax reforms, already places too much of a burden on working families. The sales tax hike and slots legalization the governor is proposing will hit our state's low- and middle-income families hardest.

The fearmongers will no doubt continue trying to scare us. In the days ahead, lawmakers will be under enormous pressure to deep-six the governor's progressive proposals and simply rely on approaches -- on sales tax and slots -- that essentially give the rich a free pass.

Average Marylanders, in response, also need to exert pressure. If the wealthiest among us are not going to be asked to pay their fair share, those of us with modest incomes -- and their elected representatives -- should withhold support from any legislative package that purports to "solve" the budget shortfall.

That's hardball, and Maryland's working and middle-income families need to start playing. Big corporations and wealthy taxpayers -- almost all of them major campaign contributors -- don't deserve any more preferential treatment. And they certainly don't need the protection of our state's elected leaders.

-- Paul G. Pinsky

University Park

-- Sam Pizzigati

Kensington

Paul G. Pinsky, a Maryland senator representing the 22nd District in Prince George's County, can be reached at paul.pinsky@senate.state.md.us . Sam Pizzigati is the editor of Too Much, an online publication on excess and inequality. He can be reached at editor@toomuchonline.org.