October 2007
In order to enact a long term solution that will ensure a healthy future for our state, the League of Women Voters of Maryland, and local Leagues state-wide, support a fairer tax system that provides adequate revenue to maintain services and address unmet needs.
In determining League positions on various revenue proposals, two major factors were considered:
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1. The budget problem is severe, now perceived as needing $1.7 billion in new funding to continue to fund current programs, and as much at $3 billion to address unmet needs in health care, transportation, environmental protection, housing, education, and programs for children and families.
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2. No specific legislation has been drafted, just general recommendations. The full impact of the proposals both on individuals, the economy, and the state budget won’t be known until more details are released including full fiscal analyses.
The following is a list of possible revenue enhancers and the LWVMD’s position on them.
Reform the income tax – LWVMD strongly supports this concept. We don’t believe the Governor’s plan goes far enough because under the Governor’s plan, typical married filers earning less than $250,000 and singles earning less than $185,000 will see their income taxes reduced. This hardly reverses the cuts made in the late 1990s which the League opposed, and it misses an opportunity to increase revenues in a progressive way. We support Gov. O’Malley’s proposal to increase the Earned Income Tax Credit and to allow taxpayers to pay a lower rate on taxable earnings up to $15,000 for single filers and $22,500 for married couples. In principle, we will support all efforts to make the income tax more progressive, but will also let lawmakers know how their proposals could be improved.
Increase the sales tax from 5 cents on the dollar to 6 cents – Although the sales tax is generally considered a regressive tax, LWVMD will support a sales tax increase with exemptions to decrease regressivity. Given the severity of the fiscal problem, LWVMD will support an increase in the sales tax with the following conditions: it continues to exclude food and medicine, the revenue package includes an increase in the Earned Income Tax Credit, a $50 rebate for low-income individuals and families, sales-tax-free days for articles of clothing priced at less than $100, and other measures to reduce the impact on low-income residents.
Expand the sales tax to services – Various proposals about what services to tax have been floated, but as there is currently no specific legislation, it is difficult to evaluate how regressive this expansion will be. However, for the reasons above, and with the same caveats, LWVMD will support an expansion of the sales tax. The service sector is the fastest growing part of the economy, yet it is virtually untapped as a revenue source. Our positions on elasticity/natural growth and adequate yield are the basis for support.
Increase corporate income tax rate – LWVMD supports increasing the corporate income tax rate from 7% to 8% because it is one of the lowest rates in the region, and the income, according to the Governor, would be used for transportation and higher education. This meets the League’s adequacy and benefit principles.
Institute combined reporting – On the Governor’s web page is says “under the ‘combined reporting’ loophole, some of the largest corporations that receive Maryland services avoid Maryland taxes by shifting profits to subsidiaries in other states. According to a report released in July by the Comptroller’s Office nearly half of Maryland's largest for-profit companies did not pay corporate income taxes in 2005. The report showed that of the 132 largest corporations in Maryland, 64 did not pay corporate income taxes in our State.” LWVMD will support this measure based on our principles of adequacy and equity/fairness.
Eliminate “controlling interest” loophole – According to the Governor’s web page “under the ‘controlling interest’ loophole, large corporations in Maryland are allowed to avoid real estate recordation and transfer taxes – 2% of the sales prices that Maryland families and small business have to pay. Last year, a Philadelphia-based company sold the 30-story Alex Brown Building in downtown Baltimore to another out-of-state company and avoided paying an estimated $2.4 million in city and state transfer and recordation taxes. At least 10 other states and the District of Columbia have closed the loophole.” LWVMD will support this measure based on our principles of adequacy and equity/fairness.
Increase vehicle titling tax 1% - The titling tax is based on the value of the vehicle; therefore this tax is somewhat progressive. Given the League’s support for transportation and transit projects, we will support this measure based on our position of adequacy.
Index the state gasoline tax to the Consumer Price Index – The gas tax in Maryland hasn’t been raised since 1993. LWVMD will support this based on the League’s positions of support for “a motor vehicle tax to be used for transportation” and adequacy.
Increase tobacco tax by $1 per pack – In the past, LWVMD has chosen not to support this tax. However, based on the critical need for funding, and our position of tax policy being compatible with social policy, LWVMD will support this tax. (It has been supported by LWVUS at the federal level). We will also support an increase in the alcohol tax, which hasn’t been raised since 1972.
Windfall profits tax on energy producing companies – Revenue from this source is slated to go to residents who have been disproportionately affected by increased energy prices. LWVMD will support based on the equity/fairness principle.
Various fees on development and pollution – based on LWVUS Natural Resources positions, we will support various proposals by a coalition of environmental groups such as fees on new pavement and impervious cover to be used for Chesapeake Bay clean-up and “polluter pay” fees that will be used for enforcement. Although these fees will do little to relieve the budget deficit, they will further the League’s goals on environmental protection.
State-sponsored slot machine gambling – LWVMD strongly opposes expanding gambling in Maryland based on the principles of equity/fairness, compatibility with social policy, and elasticity/natural growth.
