By Patrick McGrady
Special to The Dagger
Executive Summary: There are lots of taxes in Maryland, but as of today we don’t tax many services. The big spenders in Annapolis are obligated to fill a big budget deficit by next Spring, and they see taxing “services” as a way to achieve this. This means that Marylanders will pay 6% more for most everything we pay for — from haircuts to cellphone service. The Special Session of 2011 convening this October to address redistricting will likely include these tax increases.
In Maryland, we have lots of taxes.
Listing the big ones, we have:
– Real Estate Property Tax (Tax on Real property owned by individuals or corporations, rate varies)
– Personal Property Tax (for property of corporations)
– Personal Income Tax (2% to 6.25% of income, plus County income taxes)
– Corporate Income Tax (8.25% of “taxable corporate income)
– Flush Tax (Chesapeake Bay Restoration Fund Tax ($30.00 per year)
– Alcohol Tax (9% of price of alcohol products)
– Tobacco Tax ($2.00 per pack of cigarettes or 15% of other products plus regular sales tax)
– Gas tax (23.5 cents per gallon)
And these are just the Maryland-levied taxes. There are more federal taxes on personal income, corporate income, alcohol, tobacco, fuel, and don’t forget, the 2% tax on medical devices from President Obama’s Health Care Law.
But I digress– As you perused the tax information above, you surely noticed that the big tax that is missing from the list is the Maryland Sales and Use Tax of 6%.
Every time you buy a product in Maryland, the business you buy it from is required to collect the 6% Maryland Sales Tax from you, and then later remit it to the State government.
When you buy things from other states in person, over the phone, mail, or Internet the business doesn’t have to collect the Maryland Sales tax, but you (the buyer) are required by law to file the “use tax” according to the reporting schedule. According to the Maryland Comptroller’s Website, the reason given is as follows:
“Maryland’s use tax protects Maryland businesses from unfair competition. Local businesses would be at a competitive disadvantage if consumers were entitled to a 6 percent discount on items purchased from out of state businesses.”
When you visit Pennsylvania, Delaware, or Virginia and buy a new TV or shoes, you are responsible for paying the Maryland Sales and Use Tax when you bring it home to Maryland. Everybody files those taxes, right? You are required to do this, but enforcement is tilted toward high-dollar items like boats and automobiles.
Some things in Maryland are exempt from the Sales and use tax, including medicine, food purchased from a grocer for later consumption (but not food that is ready-to-eat), purchases made for resale, and newspapers.
A few services are also taxed under the authority of the Sales and Use Tax. In Maryland, janitorial services and security services are subject to the sales tax, but we don’t tax many other services — yet.
Back in the infamous O’Malley Special Session of 2007 (see last week’s post, here), O’Malley and the Democrats raised the sales tax to 6% from 5% in addition to the later-repealed tax on computer services.
But the Sales tax hasn’t been producing the level of revenue that Maryland needs to feed the addiction to spending that is pervasive in Annapolis (and DC, but that’s a different topic altogether).
Because the Maryland State government spends more than it brings in every year, it is always looking for new sources of revenue. The nearby chart shows the difference in the velocity of government spending increases and the increase in Sales Tax Revenue. From 2000-2012, the Sales and Use Tax collections have increased by ~52%, while the total budget has increased by ~91% over the same period.
So what option does a statist have, but to look for new “revenue” sources? Clearly, any cuts would put the well-being of women, old folks, and adorable puppies at risk.
And so House of Delegates Speaker Mike Busch, Senate President Mike Miller, and Governor O’Malley are looking at ways to collect more money any way they can.
Even while O’Malley goes on television to talk about “jobs” (http://abcnews.go.com/ThisWeek/video/interview-gov-martin-omalley-sen-jeff-14249492) he is looking at expanding the job-killing 6% sales tax to such things as cell phone service, car repairs, cable tv service, taxi service, barber and hair salons, and tax preparation.
A couple weeks ago, members of the House and Senate were briefed on the revenue that could be raised by taxing these services that we all use. Here’s a story about that if you want to know more: http://www.boston.com/business/taxes/articles/2011/07/27/md_analysts_present_sales_tax_extension_options/
Can I take a moment and reflect on the 2010 election? Of course I can. Back in September 2010, Bob Ehrlich accused O’Malley of planning to expand the sales tax to these services in 2011. His response: “I think that’s part of the politics of fear and division. It’s the sort of scaremonger politics that some folks choose to practice.” http://www.washingtonpost.com/wp-dyn/content/article/2010/04/09/AR2010040905046.html
Now I don’t mean to say that Bob Ehrlich would have been able to stop these tax increases, but he ran on the accusation that O’Malley would raise taxes, and that he would veto them. For the sake of the working folks in Maryland, I hope O’Malley keeps his word and doesn’t raise taxes.
My fear for the Special Session this October and the regular session of the General Assembly in January is that when the legislation to tax these services is proposed, the most organized of these occupations will be able to spend the money required to stop the taxes from hitting them, and the rest of them won’t. To clarify, I believe the accountants, lawyers, and engineers will be able to pay for lobbyists to save their own skin, while Maryland barbershops, cab drivers, car mechanics, and handymen will succumb to the wave of taxes. When you call your Senator and Delegate, tell them not only how it impacts YOU directly, but how these taxes will impact your neighbors, your co-workers, and your entire community.
It is important for us as the governed to consider what we expect from the State Government in Maryland. Do we want to be taken care of from cradle to grave? By letting government take from one group to give to another, is anybody really better off? How much freedom are you willing to give up?
Maryland has been able to spend more than is prudent for a long time because of Federal spending thanks to the proximity of Washington, DC, Fort Meade, and Aberdeen Proving Ground. We reap the benefits of the federal expenditures, but this means we are in a vulnerable position when we are spendthrift year after year.
No tax is guaranteed to pass. But these politicians need to fear for their political future in order to stop it. Will we stand together to stop tax increases, and demand spending cuts? Or will things continue as usual in Maryland?
Listen or watch the discussion with Patrick McGrady and Maynard Edwards live at 8 a.m. Wednesday on WAMD 970 AM. Or call the station to give your point of view at (410) 306-6270.