Del. Jennings: O’Malley Must “Redress These Economic Atrocities That He Has Placed On Every Maryland Taxpayer”

From the office of Del. J.B. Jennings:

Dear Editor,

It is truly remarkable what a difference four (4) years can make. If we could journey back to ‘2006’, Marylanders demanded a change in Annapolis. Despite a 60% approval rating of former Governor Ehrlich’s performance during his term, Marylanders elected a new Administration with a message that promised to create new jobs and cut taxes for middle-income Marylanders.

Now, four (4) years later and under the Leadership of Governor O’Malley, Maryland received a “change”. Unfortunately, Governor O’Malley has delivered a “change” – unexpected and undesirable to Marylander’s expectations. In only his first term, Governor O’Malley, in an unprecedented decision, raised the corporate income tax, personal income tax, and the sales tax.

According to Governor O’Malley, the purpose for these tax increases, were to resolve a decade long structural state deficit. It was the message contained in Governor O’Malley’s Executive Order (Executive Order 01.01.2007.23), that “this structural deficit has been 10 years in the making”. A structural deficit occurs from a negative balance between the sum of the State’s ongoing spending obligations and its ongoing revenues.

Contrary to the Governor’s position, State Comptroller Peter Franchot submitted a letter that stated a structural deficit could not have occurred when the State of Maryland completed the fiscal year on June 30, 2007 with an undesignated balance of $193 million dollars. This balance was the result of actual revenues exceeding the estimates by $75.0 million dollars or 0.06%. Moreover, State agencies returned $51.9 million dollars in unspent funds, which represented $17.6 million dollars more than the estimate. Furthermore, the Revenue Stabilization Account, otherwise known as the “Rainy Day” Fund, closed with a balance of $1.4 billion dollars.1

These facts clearly refuted Governor O’Malley’s position and further substantiated that Maryland’s structural deficit is not the result of diminished revenues, but rather an exercise in egregious spending and governmental growth.

Whether Governor O’Malley intentionally eschewed from Comptroller Franchot’s opinion is irrelevant and moot at this point because the State of Maryland suffered the largest tax increase in its history ($1.4 billion, with the most tax categories ever raised in a single legislative session). Governor O’Malley was confident that his tax reform package would cure the state’s budget shortfalls. Unfortunately, the Governor was wrong.

Under Governor O’Malley’s Tax Reform Legislation, he claimed to modernize Maryland’s sales tax by increasing it from the current 5% to 6%. According to the Governor, Maryland ranked 42nd in the nation for the lowest sales tax rate. He believed that increasing Maryland’s sales tax to 6% will keep the state “competitive” with Pennsylvania (6%), Virginia (5%) and Washington D.C. (5.75%). At the risk of stating the obvious, expectations for Maryland to become more “competitive” by an increase of state sale tax is ludicrous when our neighboring states of Delaware’s sale tax rate is 0% and Pennsylvania’s sales tax does not apply to textbooks, food, or clothes.

In an open letter, dated December of 2007, I cautioned my constituents and the citizens of Maryland that the approval of these measures would create a draconian impact for all Maryland households and businesses. It comes with great despair that my warning has become a reality to every business and household in this state.

According to a study conducted by The Tax Foundation in ‘2007’, Maryland ranked 24th best in business competitiveness. With the implementation of the new tax increases, Maryland fell to 43rd best. The Tax Foundation considered Maryland’s neighboring states: Delaware, Virginia, Pennsylvania, West Virginia, and New Jersey. In those comparisons, Maryland has the 5th (of 6) worst business climate index ranking, the 2nd highest tax burden, and the highest income tax rate.

Not withstanding the obvious facts above, a study was prepared by Ernst and Young, LLP, entitled “Economic and Fiscal Impact Analysis of Maryland Tax Policy Options” that calculated the taxes’ negative fiscal impacts on Maryland’s businesses and households. It was estimated that businesses would pay 40% ($273 million dollars) of the total sales tax increase, while households would pay the majority, 60% ($419 million dollars).2 Maryland employment, including state government jobs, will decrease by 8,334 jobs in 2012 and will further decrease to 9,274 jobs by 2017.3 The largest job reductions in 2012 are in wholesale and retail trade (2,341), and accommodation and food services (1,238).4 Furthermore, the decrease in employment will also reduce the personal income received by Maryland residents by $461 million dollars in 2012 and $65 million dollars in 2017.5 Lastly, the sales increases are projected to decrease real investment in business machinery, equipment, structures, and other capital assets-the reductions will reach to $152 million dollars by 2017.6

These projections were solidified last year wherein employers in Maryland eliminated approximately 44,000 jobs –these numbers topped job losses in 2008, which stood at 43,500.7

Understanding that by lowering the tax rate would not only increase state revenue but it would truly enhance Maryland to become more “competitive” with surrounding states, I introduced legislation in ‘2009’ that would have reverted the state’s sales tax rate from 6% to 5%. The reduction would potentially support new business growth while sustaining those already in existence by reducing Marylanders from crossing state lines to lower sales tax states.

The Maryland Department of Legislative Services’ (DLS) fiscal note estimated that the enactment of my legislation would have decreased sales tax revenues by $620.5 million in FY 2010 and by $793.5 million in FY 2014. Despite DLS’ assessments, the fiscal note stated, “[t]o the extent that small retail businesses located in Maryland have been adversely affected due to lost sales resulting from increasing the sales and use tax to 6%, reducing the tax would presumably mitigate any negative effects.” (emphasis added) They further determined that the reduction would result in approximately $9,500.00 in recouped sales (for a business with $1.0 million in gross sales).8 Furthermore, understanding the revenue void that could potentially result if the sales tax was reduced to 5% through the passage of my legislation, I have requested to become a co-sponsor to House Bill 1159, entitled, Budget Reduction Act.9

House Bill 1159 has identified structural changes to spending that would result in ongoing savings to the State General Fund. In total, the structural changes would generate approximately $600 million in State savings to the General Fund.

Exasperated by the “changes” brought about by Governor O’Malley, Marylanders are still waiting for the Governor to “cash in” on his promises he made four (4) years ago during his election campaign. These Marylanders should not be fooled that he will make “good” on such promises now or during the remainder of his term, because when the General Assembly dismissed my sales tax cut legislation last year, the Governor made no issue of it.

If the Governor does not hold himself accountable and redress these economic atrocities that he has placed on every Maryland taxpayer, the only “change” that could happen this year is a change in Administrations.

Respectfully yours,

J.B. Jennings
Member, House of Delegates