Taxes and Revenues: The Road Not Taken

A year into the new administration, and a few months or weeks before the next legislative session, special or general, there is no sign that any study inspiring public confidence has been undertaken of the state’s revenue and tax structure. Instead there is vague talk of conversations between the Governor and Senate President Miller, inspiring the same confidence among budget students that the Willy-Nicky agreement between Czar Nicholas II and Kaiser Wilhelm II inspired among diplomats, and for the same reasons. One finds here no Cooper-Hughes Commission, not even a Linowes Report. There is no effort to see things whole, in order to give the state a modernized tax structure, not a stop-gap designed to get through the next general election. There is certainly no effort made to balance revenues and responsibilities between state and local governments, to end the annual beg-a-thons. There is not even the agreed body of statistics that a study commission would produce: the administration feels entitled to its own facts.

Spending Control

Nor is there any systemic effort to control assertedly uncontrollable costs.

1)The administration, which belabored the Ehrlich regime for refusing to fund a politically-inspired add-on to Thornton education funds, now is doing the same thing itself, while also withholding inflation adjustments to the Thornton funds. These actions recognize that Thornton was not a reform measure but one solely directed at supporting teachers’ unions and the status quo in education. The O’Malley Administration is quite right that cuts in Thornton will make no significant educational difference, but it has taken no steps to provide a new, more rational formula: one which would more adequately fund high schools, vis-a-vis elementary schools; which would insure that union-sponsored migration of senior teachers to the least troublesome schools does not introduce new inequalities; one which provides for extra pay for teachers in scarce disciplines; one looking toward school-based management and the de-funding of huge central office staffs

2) No effort seems to be underway to curtail medicaid costs, and state employees’ health insurance costs, by eliminating mandated coverages in health insurance policies and the inflationary pressures they produce, or by curtailing coverage of future state retirees who elect to retire before becoming medicare-eligible, or by providing simplified reimbursement mechanisms for primary-care physicians

3) The administrative bloat in the state’s higher education system and its illogical and self-protective governance structure is to be left unchanged. This is hardly surprising, since a near-majority of the administration’s appointees are former occupants of administrative positions at the University of Maryland , JHU, Bowie and Montgomery College, whose administrative staffs have been treated as Rest Homes for Incurable Democrats. UMES, UMBC, and the University of Maryland professional schools, as well as Salisbury, Towson, Frostburg, Bowie and Coppin lack their own boards to provide budgetary oversight and to promote private fund-raising. The State Board for Higher Education exists for the sole purpose of operating a licensing scheme protecting the four traditionally black state colleges against competition from superior programs offered elsewhere. to the detriment of the interests of students, particularly minority students. This is particularly inexplicable since the state has, at UMBC, an example of an intelligent approach to promoting the higher education of members of racial minorities.

4) the state personnel system, honeycombed with appointive positions created by the Glendening administration, likewise remains untouched, as does its haphazard and disorganized recruiting system, calculated to give an advantage to those ‘in the know’.

5) the recent expansions of the state’s defined-benefit pension plan, secured by the teachers’ union but extending to all state employees are likewise left unquestioned. A year has passed since the departure of the State Retirement System’s Chief Investment officer; his position remains unfilled. The wise management of a $30 billion fund appears to be a matter of indifference.

Tax Structure

What seems to be contemplated by the Administration is a meat-axe approach to tax increases, together with a slots plan well-lubricated by, and in the interests of, campaign contributors to both parties.

1) a sales tax increase, with the usual regressive effects, is in the offing. It will be accompanied by an extension of the tax to those service industries that are least politically powerful, i.e. those whose members are least prosperous and least able to hire lobbyists. Its final form is not certain, but it is more likely that janitorial services will be included than that legal or accounting services will be; more likely that dry cleaners will be taxed than health-care providers

2) there may be a further increase in the tobacco tax, an exaction on what is widely perceived as a ‘Republican’ industry. The traditionally ‘Democratic’ alcoholic beverage industry will be spared, as it has been for the last fifty years.

3) There appear to be no plans for significant changes in business taxation, though this is an area that cries out for reform. The personal property tax is hollowed out and is characterized by wide local variations. The corporate income tax partakes of many of the defects of its federal counterpart. Both fall much more heavily on manufacturing than on service industries. Yet there has been no exploration of the introduction of a broad-based ‘business enterprise’ tax like that of New Hampshire

Posted in: Fiscal