The Linowes Commission is like a time capsule. It was created in 1987 by Maryland Gov. William Donald Schaefer to study our tax structure, but its just-released report reflects an economy that has since changed dramatically. In 1987 we enjoyed a $300 million surplus. Now we are faced with a $400 million deficit. Back then our coveted Triple-A bond rating was secure. Now the budget shortfall places it at risk. In 1987 a healthy economy was pumping extra money into state coffers from income, sales and corporate taxes. Now those sources are producing less than hoped for. Then, the governor and the General Assembly were building sports stadiums. Now we are being urged to abandon plans to build a new state office building in Baltimore.
We are at that tipping point where yet higher taxes would strangle the economy. Now is not the time to tax and spend an additional $1 billion in one year, as proposed by the Linowes Commission. The legislature's Spending Affordability Committee has recommended that any increase in spending be achieved exclusively from current sources of revenue. Thus we are on a collision course with the massive Linowes tax hike proposals.
To adopt the Linowes recommendations runs the risk of converting a recession into a depression. This is especially so for Montgomery County. According to our Department of Fiscal Services, Montgomery County would get back only 3 cents for every dollar of new money generated. That accounts for the local dismay bordering on horror that has greeted the release of the Linowes recommendations.
The Commission on State Taxes and Tax Structure was chaired by Robert Linowes, a Montgomery County attorney distinguished for his skill and courtesy. But the panel has nevertheless missed the mark. It aimed at the rich but struck the middle class instead -- and hard. For it is middle-income taxpayers, not the rich, who will bear the brunt and be the principal victims of Linowes Commission tax hikes. And a disproportionate number of these victims live in the Washington area.
The Linowes drum-beaters are misleading when they say Montgomery County will not be hurt. What they mean is that the "piggy-back" county income tax revenue will not be sent elsewhere. For this maintenance of one aspect of the status quo we are expected to be grateful. But the people living in Montgomery County will most certainly be hurt should the Linowes recommendations be adopted. Sophistry on the part of the commission dealing with this question of hurting Montgomery County does little to increase confidence in its suggestions. Likewise the mantra of "simplification" and "restructuring," repeated over and over by Linowes commission apologists, turns out on examination to be hollow sloganeering, masking the actual net effect.
Here's why most of the Linowes recommendations are particularly bad news for the Washington area:
The sales tax would be raised by 10 percent (from 5 percent to 5.5 percent). This by itself would inhibit a recovery from the current economic doldrums. Businesses forced to extract more from consumers would suffer. Consumers paying the extra tax would suffer more. Result: fewer purchases and further decline. Moreover, the higher sales tax would cover more items, such as dry cleaning, parking, shoe repair, auto repair, lawn care, cable TV, telephone answering services and many other matters. The sum total of the sales tax proposals would put business in the Maryland suburbs at a severe competitive disadvantage. Virginia's sales tax is 3.5 percent.
The income tax hike would be an especially cruel blow for families in the Washington suburbs of Maryland. Relatively higher incomes here merely reflect a higher cost of living. The Linowes Commission accepts the myth that our state income tax is insufficiently "progressive." But including the piggy-back county income tax, the current top 7.5 percent rate is among the highest in the country. The increase in the tax rate proposed would take more money from the middle class in our area than from any other segment of the population.
Limiting the state's contribution to teacher pensions hurts education in those counties with the best school systems, such as Montgomery. Pension costs are higher when teachers stay in the system longer. And educators stay in Montgomery County longer because the overall system is better. Capping the pensions would have the further effect of putting enormous new pressure on the local property tax rate to make up the difference.
Then there is the personal property tax, a new levy proposed for Maryland. The 2 percent annual tax on the value of each car would fall hardest on those least able to pay. You can imagine the effect it would have on already depressed auto sales in the Maryland suburbs. Our area competitors would reap a windfall as both consumers and auto dealers would suffer.
Underneath it all the Linowes Commission has an attitude problem. It appears disdainful not only of voters but of middle-income taxpayers and of legislators as well. It seems to assume not only that it is right but that the rest of us know it is right, if only the messy business of democracy could be dispensed with.
Clearly there is nothing in the Linowes Commission report that would help the average taxpayer in Montgomery County. But that is also true throughout most of Maryland. Our state has a population of just under 4.7 million. It is impossible to tax and spend an additional $1 billion in a state our size in one year without hurting the middle class.
When Financial World, in an article earlier this year, referred to Maryland as a tax hell, it was because taxes here are already dangerously high. Too many retired people move away, and too many others struggle to pay the high rates. Any changes should aim at lowering the tax burden, not increasing an already heavy load.
There may be some good ideas among the many bad suggestions in the Linowes report. Elected lawmakers will attempt to separate the wheat from the chaff. But from what has been released to date, the Linowes recommendations deserve no more than a place on the shelf.
The writer is a Republican Maryland state senator from Montgomery County.