(Nov. 27, 2014) A consistent campaign theme of Gov.-elect Larry Hogan that resonated with Maryland voters was his pledge to seek ways to roll back as many as possible of 40 tax increases his campaign identified as enacted during the last eight years.
As Hogan and his transition team put together an agenda for his administration and the governor-elect gauges the extent of Maryland’s fiscal challenges, a look at those specific 40 tax and fee increases serves as a reality check on the nature of the increases and the impact of potential rollbacks.
As I see it, the 40 increases tend to fall into a handful of categories.
Income taxes
State lawmakers increased personal income taxes twice since 2007, increasing top marginal rates from 4.75 percent to 5.5 percent for most taxpayers in 2008, and in 2012 increasing income tax rates for earners of more than $100,000 — with top rates at 5.75 percent. A “millionaires tax” with a top rate of 6.25 percent was also enacted in 2008, but expired in 2010.
Meanwhile, in 2012, lawmakers also reduced personal exemption amounts for earners whose income levels exceed $100,000. Income taxes are the state’s largest revenue source, generating more than half of operating revenue.
Sales taxes
Lawmakers increased the sales tax from 5 percent to 6 percent during 2007 session. Sales taxes are the state’s second-largest revenue source, generating approximately 27 percent of operating revenue. In 2007, lawmakers broadened the sales tax to include computer services, but then repealed it in 2008. Also, in 2012, lawmakers eliminated a sales tax exemption on cylinder tanks, such as propane containers.
Corporate income tax
Lawmakers increased Maryland’s corporate income tax rate from 7 percent to 8.25 percent in the 2007 special session. Corporate income taxes rank a distant third as a state revenue source, generating more than 5 percent of operating revenue.
‘Sin’ taxes
Between 2007 and 2012, lawmakers enacted significant increases in taxes on cigarettes, other tobacco products, alcoholic beverages and electronic gaming tip jars.
Registration and document fees
Between 2010 and 2013, lawmakers increased fees for handgun licensing, birth certificates, death certificates, weights and measures registration, out-of-state attorney admissions, contractor licensing and fishing licensing.
Transportation taxes and tolls
Transportation legislation in 2013 increased the per-gallon sales tax on fuel, implemented a vehicle registration surcharge, increased transit fare-box requirements and indexed fuel taxes to the Consumer Price Index.
Between 2007 and 2011, lawmakers increased the vehicle excise tax and fees for vehicle titling (twice), dealer vehicle processing and vanity plates. Lawmakers also authorized new fines to be generated by speed cameras in highway work zones. Most of the transportation-related fees go into the state’s transportation fund, not general operating expenses. Meanwhile, highway tolls were increased by the Maryland Transportation Authority and are tied to already-secured construction bonds.
State program fees
In addition to enacting the stormwater management fee — the “rain tax” — lawmakers in 2012 also increased the bay restoration fee (“flush tax”) and fees for the Lead Poisoning Prevention Fund and the Wetland Waterway Program. These revenues are mostly channeled into special funds, not operating funds.
Real estate-related taxes
In 2007, lawmakers increased taxes on real property transfers and captive real estate investment trusts. In 2012, lawmakers expanded the recordation tax to indemnity mortgages. Most revenue for these taxes goes to the counties, not the state.
Other increases
In 2013, lawmakers enacted a fee on energy bills for offshore wind development. In 2011, they eliminated an exemption related to the Injured Workers Insurance Fund and imposed an assessment on hospitals to support Medicaid.
As I noted above, two of the 40 increases — the millionaire’s tax and the computer services tax — have either expired or been repealed.
Just from this thumbnail summary of Hogan’s 40 increases, a few observations come to mind.
First, a number of these taxes and fees — such as real estate-related taxes, transportation taxes and tolls and “sin” taxes — do not relate directly to the state’s operating fund and accrue mostly to local governments or special funds.
Other fees, such as those generated from birth and death certificates and various licenses, don’t raise comparatively large amounts of revenue and are not likely candidates for impactful repeal.
This begs two key questions. Which of remaining taxes on the list would repeal or reduction have the most positive impact on our state’s business competitiveness?
Action on four potential taxes would help strengthen Maryland’s business competitiveness: the rain tax, the income tax rate increases enacted in 2007 and 2012 — especially as they impact owners of small businesses such as partnerships and LLCs — and the corporate income tax rate increase, according to a consensus of a private-sector commission of tax and policy experts formed by the Greater Baltimore Committee.
It can be argued that three of those — the rain tax and the two income tax rate increases — are also among those most disliked by the general public.
Further complicating the situation is that rain tax revenue –— like real estate taxes and fees — benefits local governments. It remains to be seen whether local governments — even those with GOP county executives or legislative bodies or both — would relish the thought of forfeiting local revenues for the sake of a tax rollback.
However, the extent to which Maryland citizens can anticipate repeal of any tax increases will rest largely on whether the Hogan administration can identify enough spending cuts to cover an estimated $900 million deficit plus revenue that would be lost as a result of the tax cut.
With pledges of no new taxes on the table, the irony is that — until potential tax reductions and their positive impact on business climate could ultimately be realized — tax relief in Maryland will depend not on our state’s tax policy, but on its spending policy.
As Hogan and his transition team put together an agenda for his administration and the governor-elect gauges the extent of Maryland’s fiscal challenges, a look at those specific 40 tax and fee increases serves as a reality check on the nature of the increases and the impact of potential rollbacks.
As I see it, the 40 increases tend to fall into a handful of categories.
Income taxes
State lawmakers increased personal income taxes twice since 2007, increasing top marginal rates from 4.75 percent to 5.5 percent for most taxpayers in 2008, and in 2012 increasing income tax rates for earners of more than $100,000 — with top rates at 5.75 percent. A “millionaires tax” with a top rate of 6.25 percent was also enacted in 2008, but expired in 2010.
Meanwhile, in 2012, lawmakers also reduced personal exemption amounts for earners whose income levels exceed $100,000. Income taxes are the state’s largest revenue source, generating more than half of operating revenue.
Sales taxes
Lawmakers increased the sales tax from 5 percent to 6 percent during 2007 session. Sales taxes are the state’s second-largest revenue source, generating approximately 27 percent of operating revenue. In 2007, lawmakers broadened the sales tax to include computer services, but then repealed it in 2008. Also, in 2012, lawmakers eliminated a sales tax exemption on cylinder tanks, such as propane containers.
Corporate income tax
Lawmakers increased Maryland’s corporate income tax rate from 7 percent to 8.25 percent in the 2007 special session. Corporate income taxes rank a distant third as a state revenue source, generating more than 5 percent of operating revenue.
‘Sin’ taxes
Between 2007 and 2012, lawmakers enacted significant increases in taxes on cigarettes, other tobacco products, alcoholic beverages and electronic gaming tip jars.
Registration and document fees
Between 2010 and 2013, lawmakers increased fees for handgun licensing, birth certificates, death certificates, weights and measures registration, out-of-state attorney admissions, contractor licensing and fishing licensing.
Transportation taxes and tolls
Transportation legislation in 2013 increased the per-gallon sales tax on fuel, implemented a vehicle registration surcharge, increased transit fare-box requirements and indexed fuel taxes to the Consumer Price Index.
Between 2007 and 2011, lawmakers increased the vehicle excise tax and fees for vehicle titling (twice), dealer vehicle processing and vanity plates. Lawmakers also authorized new fines to be generated by speed cameras in highway work zones. Most of the transportation-related fees go into the state’s transportation fund, not general operating expenses. Meanwhile, highway tolls were increased by the Maryland Transportation Authority and are tied to already-secured construction bonds.
State program fees
In addition to enacting the stormwater management fee — the “rain tax” — lawmakers in 2012 also increased the bay restoration fee (“flush tax”) and fees for the Lead Poisoning Prevention Fund and the Wetland Waterway Program. These revenues are mostly channeled into special funds, not operating funds.
Real estate-related taxes
In 2007, lawmakers increased taxes on real property transfers and captive real estate investment trusts. In 2012, lawmakers expanded the recordation tax to indemnity mortgages. Most revenue for these taxes goes to the counties, not the state.
Other increases
In 2013, lawmakers enacted a fee on energy bills for offshore wind development. In 2011, they eliminated an exemption related to the Injured Workers Insurance Fund and imposed an assessment on hospitals to support Medicaid.
As I noted above, two of the 40 increases — the millionaire’s tax and the computer services tax — have either expired or been repealed.
Just from this thumbnail summary of Hogan’s 40 increases, a few observations come to mind.
First, a number of these taxes and fees — such as real estate-related taxes, transportation taxes and tolls and “sin” taxes — do not relate directly to the state’s operating fund and accrue mostly to local governments or special funds.
Other fees, such as those generated from birth and death certificates and various licenses, don’t raise comparatively large amounts of revenue and are not likely candidates for impactful repeal.
This begs two key questions. Which of remaining taxes on the list would repeal or reduction have the most positive impact on our state’s business competitiveness?
Action on four potential taxes would help strengthen Maryland’s business competitiveness: the rain tax, the income tax rate increases enacted in 2007 and 2012 — especially as they impact owners of small businesses such as partnerships and LLCs — and the corporate income tax rate increase, according to a consensus of a private-sector commission of tax and policy experts formed by the Greater Baltimore Committee.
It can be argued that three of those — the rain tax and the two income tax rate increases — are also among those most disliked by the general public.
Further complicating the situation is that rain tax revenue –— like real estate taxes and fees — benefits local governments. It remains to be seen whether local governments — even those with GOP county executives or legislative bodies or both — would relish the thought of forfeiting local revenues for the sake of a tax rollback.
However, the extent to which Maryland citizens can anticipate repeal of any tax increases will rest largely on whether the Hogan administration can identify enough spending cuts to cover an estimated $900 million deficit plus revenue that would be lost as a result of the tax cut.
With pledges of no new taxes on the table, the irony is that — until potential tax reductions and their positive impact on business climate could ultimately be realized — tax relief in Maryland will depend not on our state’s tax policy, but on its spending policy.