May 16, 2 PM UPDATE: The House has passed SB1302 and it now heads to Gov. O’Malley’s desk, where he is expected to sign it.

Maryland lawmakers are on the verge of bucking a national trend.  While most of the biggest state tax debates in 2012 have focused on proposals that would cut taxes and tilt state tax systems even more heavily in favor of the wealthy, Maryland appears poised to do exactly the opposite.  On Tuesday, the state Senate voted to raise tax rates and limit tax exemptions for single Marylanders earning over $100,000 and for married couples earning over $150,000 per year.  The House is expected to follow suit by passing the same bill (SB1302) as early as Wednesday.

If enacted into law, these changes will allow the state to avoid a variety of cuts to vital public services, as detailed by the Maryland Budget and Tax Policy Institute.  But in addition to improving the adequacy of Maryland’s tax system, a new analysis from our sister-organization, the Institute on Taxation and Economic Policy ( ITEP), shows that the income tax changes contained in SB1302 would also lessen the unfairness of a regressive tax system that allows Maryland’s wealthiest residents to pay less of their income in tax than any other group.  Among ITEP’s findings:

• Because the income tax changes are limited to taxpayers earning over $100,000 or $150,000 per year, only 11 percent of Maryland taxpayers would face an income tax increase in 2012 as a result of SB1302.  (It’s worth noting, however, that increases in tobacco taxes, fees, and other provisions would affect additional taxpayers—though these increases make up just 3 percent of the bill’s total revenue.)
• 54 percent of the income tax revenue raised by SB1302 would come from the wealthiest 1 percent of state taxpayers—a group with an average income of nearly $1.6 million per year.  87 percent of the revenue would come from the top 5 percent of taxpayers.
• The changes in families’ income tax bills—even at the top of the income distribution—would be very modest.  After considering the "f ederal offset" effect, the tax increase faced by the top 1 percent of taxpayers would equal just 0.16 percent of their total household income, and taxpayers outside of the top 1 percent would face an even smaller increase.  Given the small size of these tax changes, Maryland’s tax system would undoubtedly remain regressive overall.
• The progressive nature of SB1302 means that it’s well suited to take advantage of the “ federal offset” effect mentioned above, whereby wealthier taxpayers write-off their state tax payments and receive a federal tax cut in return.  17 percent of the revenue raised by SB1032—or $28 million in tax year 2012—would come not from Marylanders, but from the federal government in the form of new federal tax cuts for Maryland taxpayers.

See ITEP’s full analysis here.

• Michigan Governor Rick Snyder is voicing support for federal legislation that would allow states to collect sales taxes owed on purchases made over the Internet, but he has little interest in pursuing a state-level law that would allow Michigan to begin chipping away at the problem.

• The Gazette has an article about the failure of Maryland legislators to raise the gas tax during their recently concluded regular session.  It cites research from the Institute on Taxation and Economic Policy ( ITEP) showing that the state’s gas tax rate would need to rise by 15.8 cents just to offset the last two decades of construction cost inflation.  In the article, Governor O’Malley explains the obvious: high gas prices caused lawmakers to delay this overdue reform, again.

• Legislators in New Hampshire were well on the way to eliminating a tax on internet access, until a flap between the House and Senate over other provisions in the legislation derailed it. Still, leadership in both chambers remain committed to eliminating the tax that appears on consumers’ broadband and wireless bills.  But the New Hampshire Fiscal Policy Institute ( NHFPI) warns against eliminating the tax in a recent report which explains that $12 million in annual revenues are a stake, and that better, more targeted options for reducing taxes on New Hampshire families are available.

• This week, New Hampshire gubernatorial candidate Bill Kennedy came out with his own proposal to reduce property and businesses taxes and make up for the loss of those revenues by introducing a personal income tax in the state, which is one of nine states that doesn’t levy one. At the same time, the Granite State’s Senate is about to take up a radical and constraining proposal to amend their constitution to make sure no personal income tax can ever be levied. Stay tuned.

Maryland Governor Martin O’Malley announced that he will call a special legislative session to start next week.  Lawmakers are widely expected to pass a progressive income tax package in order to avoid massive “doomsday” budget cuts.

Tennessee’s inheritance tax will be eliminated beginning in 2016.  Legislators recently sent Governor Haslam a bill repealing the tax, seduced by bogus claims about the economic benefits of repeal.  Lawmakers also passed two other notable tax cuts: one repealing the gift tax (which The Commercial Appeal says will benefit Gov. Haslam himself, along with other wealthy taxpayers), and another cutting the state sales tax on groceries by a quarter of a percent.

The gubernatorial race in Washington State is heating up and costly tax expenditures are getting long overdue attention from the candidates. But as this piece in the Seattle Times highlights, eliminating spending programs embedded in the tax code is easier said than done.  Read CTJ’s advice for how to do it here.

Finally, check out this timely column describing why Minnesota Governor Mark Dayton should veto a bill passed by the legislature under the guise of job creation. (Hint - it’s really a massive tax cut for business.)

The history of states subsidizing professional sports stadiums with taxpayer dollars is long and, increasingly, controversial. Maryland provided nearly one hundred percent of the financing for the Orioles’ and Ravens’ shiny new facilities in the 1990s. In 2006, the District of Columbia subsidized the Washington Nationals’ new stadium at a cost to taxpayers of about $700 million.  And even though most stadiums are, in the long run, economic washes at best, losers at worst, there are still politicians willing to throw money at them.

Minnesota legislators, for example, are currently grappling with how to fund a new stadium for the Vikings in response to threats that the franchise may leave the state.  But before the legislature gives away nearly a billion dollars, State Senator John Marty raises some excellent points about the math, and morals, behind the proposed taxpayer subsidies for the stadium:

“The legislation would provide public money in an amount equivalent to a $77.30 per ticket subsidy for each of the 65,000 seats at every Vikings home game. That's $77 in taxpayer funds for each ticket, at every game, including preseason ones, for the next 30 years.… Public funds can create construction jobs, but those projects should serve a public purpose, constructing public facilities, not subsidizing private business investors. The need to employ construction workers is not an excuse to subsidize wealthy business owners, especially when there is such great need for public infrastructure work.” 

In  Louisiana, the House of Representatives has gone ahead and approved a ten-year, $36 million tax subsidy  to keep the state’s NBA team, the Hornets, in New Orleans until 2024. Some are asking if the state can really afford it given a $211 million budget gap.  Representative Sam Jones noted that while the state has cut health and education spending, it still found a way to come up with millions of dollars to help out the ”wealthiest man in the state.” That would be Tom Benson, owner of not only the Hornets but the legendary New Orleans Saints football team, whose net worth is $1.1 billion dollars.

In California, however, a different scenario is unfolding. Sacramento Mayor Kevin Johnson just abandoned negotiations with owners of the city’s NBA team, the Kings.  The Kings organization was unwilling to put up any collateral, share any pre-development costs, or commit to a more than a 15 year contract; this would have left the city shouldering all the costs – and all the risks – for developing the $391 million downtown facility.  Mayor Johnson said he’d offered everything he could to the team and it still wasn’t enough, so he pulled the plug. 

Given the high cost and low return (including in terms of jobs) that sports facilities generate, more leaders should follow Minnesota’s Marty and Sacramento’s Johnson and stand up for the taxpayers who pay their salaries.

(Thanks to Field of Schemes and Good Jobs First for keeping tabs on these subsidies!)

• The Maryland Budget and Tax Policy Institute just unveiled a “Doomsday Clock” on their website.  The countdown shows how many days are left until massive budget cuts take effect on July 1.  The Institute explains that these cuts can be avoided if Governor O’Malley calls a special session and lawmakers pass the progressive income tax package agreed to in conference committee.

• Former Mississippi Governor Haley Barbour continues to lobby for taxing internet sales even after leaving the Governor’s mansion. In fact, in his farewell address to Mississippians the Governor said, “It is time for the federal government to allow Mississippi and every other state to choose to enforce our laws and to collect these taxes. They are owed us today, and there is no longer any public policy reason to keep us from collecting. Indeed, good public policy says it is past time that our brick-and-mortar merchants on Main Street and in our shopping centers get a level playing field with Amazon and the Internet. That they get fair treatment for paying our taxes.”

• Thanks to an obscure tax loophole which offers Iowans the ability to write off all of their federal income taxes paid, Governor Terry Branstad had a 2011 tax bill of just $52. One state senator is pondering whether or not the state needs a “ Branstad rule” to ensure that upper income Iowans pay more in state taxes. The Governor’s lack of a tax bill illustrates just how preposterous the loophole is – and why there are only six states that allow it.

• Now that the rush to make sure our taxes are filed on time is over, here’s a downright beautiful essay from a priest in Kansas reminding us the good that comes from all the frenzy.

• Here’s a thoughtful editorial from the St. Cloud Times describing Minnesota’s need to fund important transportation projects. Lawmakers there are looking into toll roads because the political will to raise gas taxes doesn’t exist – yet the editors rightly conclude, “It’s not that we oppose building this bridge or expanding roads. It’s just that the fairest revenue stream to do so is the gas tax. Legislators just need the courage to adjust it as needed.” To see how Minnesota’s gas tax has effectively shrunk over time, check out this chart from the Institute on Taxation and Economic Policy ( ITEP).

We’ve written a lot about plans to eliminate Missouri’s income tax and boost the sales tax instead, spearheaded by anti-tax mastermind Rex Sinquefield.  He had hoped to put this radical plan before voters this November but the initiative’s advocates aren’t sure they can use the signatures they’ve gathered because of legal challenges.  The awful policy implications of the Sinquefield plan aside, this article explains how the ballot initiative process in Missouri has gone kablooey in recent years.   The 22 versions of the anti-income-tax initiative filed with the Secretary of State is in some ways an indictment of Missouri’s elected officials who have repeatedly refused to participate in serious tax reform debates.

With tax day just around the corner, Wisconsin Budget Project reminds us that working Wisconsinites who qualify for the Earned Income Tax Credit will actually see fewer benefits this year thanks to draconian cuts in the credit passed in the 2011-13 budget.

Maryland’s Senate President says that lawmakers “have an agreement” on a package of progressive personal income tax increases, but that they simply ran out of time to pass that package before last night’s midnight deadline.  Gov. O’Malley is expected to call a special session so that the increases can be enacted, but he has not done so yet.

Here’s a great read from The American Prospect that talks about the need to reform regressive state and local tax structures, citing ITEP research.

Our nation’s gas tax policy is horribly designed, and the consequences have never been more obvious at either the federal or state levels.  Construction costs are growing while the gas tax is flat-lining, and the resulting tension has made even routine transportation funding debates too much for our elected officials to handle.  Just last week, President Obama signed into law the ninth temporary, stop-gap extension of our nation’s transportation policy since 2009, and numerous states are similarly opting to kick the proverbial can down the crumbling road.

Much of our collective transportation headache arises from our “fixed-rate” gas taxes that just don’t hold up in the face of rising construction costs.  The federal gas tax hasn’t been raised in over 18 years, and most states have gone a decade or more without raising their tax.  There’s no doubt that we’re long-overdue for a gas tax increase, but political concerns have kept that option largely off the table.  In addition to the embarrassing federal Band-Aid fix just signed into law by the President, here’s what we’re seeing in the states:

The Michigan Senate has voted to permanently take millions in sales tax revenue away from health care, public safety, and other services in order to complete basic road repairs.  But as the Michigan League for Human Services explains, the state would be much better off modernizing its stagnant gas tax.

Both the Oklahoma House and Senate have voted to raid the general fund as a result of lagging gas tax revenues.  These proposals are very similar to the one under consideration in Michigan, and when fully phased-in they would divert $115 million away from education and other services in order to improve some of the state’s wildly deficient bridges.

Luckily, Virginia lawmakers didn’t agree to Governor McDonnell’s proposal to raid the general fund in a manner similar to what’s being considered in Michigan and Oklahoma.  But they also failed to enact a much smarter proposal passed by the Senate that would have indexed the state’s gas tax to inflation.  It looks like rampant traffic congestion will remain the norm in Virginia for the foreseeable future.

Iowa and Maryland appear likely to follow Virginia’s lead and do nothing substantial on transportation finance this year.  Iowa House Speaker Kraig Paulsen says that after much talk, a gas tax increase is not happening.  And while Maryland Governor Martin O’Malley is trying hard to end almost two decades of gas tax procrastination in the Old Line State, it doesn’t look like the odds are on his side.

Connecticut lawmakers aren’t just continuing the status quo, they’re actually making it worse.  Connecticut is among the minority of states where the gas tax actually tends to grow over time, since it’s linked to gas prices.  But the Governor recently signed a hard “cap” on the gas tax that prevents it from rising whenever wholesale prices exceed $3.00 per gallon.  Lawmakers in North Carolina briefly considered a similar cap last year, but as the Institute on Taxation and Economic Policy ( ITEP) explains, blunt caps are very bad policy and there are much better options available.

For more on adequate and sustainable gas tax policy, read ITEP’s recent report, Building a Better Gas Tax.

Photo of Governor Martin O'Malley and Sunoco Gas Station via  Third Way and MV Jantzen Creative Commons Attribution License 2.0

Whatever comes of rumors that Governor Haley might face tax fraud charges, a modified income tax cut has passed out of South Carolina’s House Ways and Means Committee. Perhpas due to ITEP’s analysis, which found that the poorest South Carolinians would see their taxes increased under the legislation, it was modified to at least spare the poorest South Carolinians from new taxes.

Check out yesterday’s post from the Wisconsin Budget Project showing that diminishing revenues are a "purple problem" because taxes keep getting cut no matter who's in power.

The personal income tax has been under threat of repeal for most of this year in Oklahoma, but the Oklahoman reported yesterday that the Chair of the House Taxation and Revenue Committee says it’s unlikely full repeal will come to fruition.  A cut in the top tax rate, however, still appears likely so they’re still buying the economic snake oil.

Here is a commonsense editorial from the Kansas City Star advocating for the taxing internet purchases and the streamlined sales tax agreement.  

This week, Progressive Maryland came out with their compromise plan designed to bridge the gap between the personal income tax increases passed by the state House and Senate.  The plan was analyzed with the help of the Institute on Taxation and Economic Policy ( ITEP), and would raise needed revenues while actually reducing the unfairness of the state’s regressive tax system.

A new report from the Political Economy Research Institute at UMass Amherst examines the research on potential responses to states raising taxes on wealthy households.  They conclude that while it can lead to tax planning changes among the more affluent, a permanent reasonable tax increase will improve a state’s revenue picture and, contrary to conventional wisdom, will not cause wealthy residents to flee to lower tax states.

Legislation pending in Maryland would require the state to evaluate whether its tax credits are achieving the goals for which they were enacted.  The vast majority of states still have no system in place for determining the costs and benefits of tax credits.  As in Oregon, the legislation would use sunset provisions (or expiration dates) to force lawmakers to review the evaluations before allocating more funds.  The Institute on Taxation and Economic Policy ( ITEP) has a policy brief on accountability in tax credits and testified in support of a similar bill in Rhode Island last year.

The grassroots group Alabama Arise is getting positive news coverage for a rally they organized in Montgomery last week calling on lawmakers to exempt groceries from the sales tax and replace the revenue by eliminating a tax break that primarily benefits the wealthiest Alabamians.

In response to Ohio Governor John Kasich’s proposal to cut income taxes (paid for by increased taxes on gas mining) Policy Matters Ohio released a brief showing that Ohioans in the top one percent would get an annual tax cut of about $2,300 while middle income Ohioans ($32,000 to $49,000) would only get about $42.  Meantime, the powerful House Finance Chairman, Rep. Ron Amstutz, is postponing action on the Governor’s proposal, saying, “the more the members of our caucus have learned about this particular proposal, the more concerned I’ve become that there are key questions that cannot be sufficiently answered and resolved within the available legislative time frame.”

Nevada Governor Brian Sandoval campaigned on a promise of no-new-taxes but is breaking that promise (for a second time!) with his plan to balance the Silver State budget.  In an effort to avoid deep cuts in education, Sandoval is once again supporting an extension of temporary sales, payroll, and car taxes originally enacted in 2009.  Grover Norquist calls Sandoval the poster boy for why candidates can’t just promise no-new-taxes, they have to sign his pledge; in fact, Sandoval is a good example of why they shouldn’t.

We’ve already written that Arthur Laffer’s claims about economic growth and income tax repeal are fundamentally flawed and that in fact “high rate” income tax states are outperforming no-tax states. Now, three respected Oklahoma economists have come out in agreement, and are offering their own critique of Laffer’s findings. This is great news given that Laffer’s work has been so central to lawmakers’ efforts to eliminate the state income tax – the most progressive feature of any state’s tax system.

This week the Maryland Senate voted to raise personal income taxes in order to offset the anticipated "doomsday cuts" in public services that would otherwise have to occur.  An analysis from the Institute on Taxation and Economic Policy (ITEP) showed that the bill would be generally progressive.  And in yet another bit of good news, a late amendment to the bill would enhance its progressivity even more, as Marylanders earning more than a half-a-million dollars will no longer be able to take advantage of the state’s lower marginal rate brackets.

The Wichita Eagle editorial board is watching the Kansas House and Senate take up tax reform, and they are worried. While they’re glad some lawmakers are dubious about “the suspect advice of Reagan economist Arthur Laffer,” the governor’s advisor, they don’t like a House plan that “makes permanent the punishing budget cuts of the past few years to education, social services and other programs.” They opine that “tax reform needs to make fiscal sense and broadly benefit Kansans,” and conclude that with the various and competing proposals right now, it’s anybody’s guess if that will be the outcome.

The Institute on Taxation and Economic Policy ( ITEP) testified this week in favor of a bill that would reinstate Maryland’s recently expired “millionaires’ tax.”  As ITEP explains in its testimony, the millionaires’ tax would make the state’s regressive tax system slightly less unfair.  And despite predictable claims from the anti-tax crowd, there’s no reason to think that the tax would harm the state’s economy.

Confirming our fears, it looks like Idaho lawmakers’ plan to cut taxes for the wealthiest and businesses in Idaho is moving forward. Legislation to reduce the top income tax rate passed out of the House Revenue and Taxation Committee.  In more bad Idaho news, it will not be joining the ranks of states with an Amazon tax this year as the bill failed to gain enough support.

It’s only March, yet Sales Tax Holiday season is already rearing its head. Alabama Governor Robert Bentley supports a “storm gear” holiday in advance of tornado season.  Lawmakers in Georgia are combining a sales tax holiday (bad idea) with a proposal to require online retailers to start collecting sales taxes from Peach State e-shoppers (good idea) in an effort “to kill any talk that a tax increase is afoot.”  And, Florida House members have already approved another year of a back to school tax holiday planned for August. 

ITEP’s Who Pays study was cited in an Associated Press article about heroic efforts to start taxing capital gains and other reforms in Washington State.  Because Washington has no personal or corporate income tax, and instead relies heavily on sales taxes, it has the most regressive tax system in the country.  At a press conference this week in support of the capital gains tax, Rep. Laurie Jinkins said, “Our fundamental problem in this state, in terms of revenue long term, has to do with fairness, adequacy of resources and stability of the resources that we bring into this state.”

Note to Readers: Over the coming weeks, the Institute on Taxation and Economic Policy will highlight tax policy proposals that are gaining momentum in states across the country.  This week, we’re taking a closer look at proposals which would increase state revenues to pay for important public investments. 

Given the number of Governors calling for major tax cuts in their states, you’d think that states are suddenly awash in cash and well on the road to economic recovery.  But the reality is that very few states are back to where they were before the recession hit in terms of tax collections and public spending.  Many were limping along with federal stimulus funds, but now that’s dried up, too. Recognizing the need to begin restoring investments in education, transportation, and health care or prevent even more devastating cuts to these services, a handful of Governors have put tax increases on the table.  The proposals range from across-the-board rate increases to tax hikes only on the wealthiest, permanent to temporary changes, and plans that require only legislative approval to ballot initiatives for the public to decide.

California Governor Jerry Brown is taking his proposed tax increase to the voters in November.  In an effort to prevent damaging cuts to public education, Brown is asking wealthy Californians to pay more income taxes and everyone to chip in with a higher sales tax for the next five years.  A recent poll shows Californians are overwhelmingly on his side- more than 2/3rds of those surveyed support the Governor especially when the tax increases are linked to investments in education.

Maryland Governor Martin O’Malley included several r evenue raising measures in his recent budget proposal to help close a $940 million gap.  Most notable is a plan to raise taxes on upper-income Marylanders through limiting the amount of itemized deductions and personal exemptions they are able to claim - a recommendation ITEP made last year.

O’Malley also proposed taxing internet transactions, digital downloads and increasing taxes on tobacco products and the state’s “flush tax.”  He recently announced a plan to apply the sales tax to gasoline rather than an increase in the designated gas tax to address transportation needs in the state.

Washington lawmakers are facing off on how best to address a $1 billion budget gap this year.  Governor Christine Gregoire is pushing for a temporary half-cent sales tax increase that would raise roughly $500 million, and to close the remaining gap with spending cuts.  At least two competing proposals, however, have emerged that would raise needed revenue and improve the fairness of the state’s tax structure.  The first is a one percent tax on corporate and personal income that would raise $500 million and allow for a reduction in the state’s sales and business-occupations taxes. Another plan would tax realized capital gains at five percent, raising between $215 million and $650 million a year. 

Given Washington’s restrictive rules on revenue-raising (a two thirds legislative supermajority is required to enact increases), any proposed tax increase will likely end up on a ballot (which a legislative simple majority can implement) for the voters to decide this Spring or Fall.

North Carolina Governor Beverly Perdue recently proposed reinstating most of a temporary sales tax increase that expired last year.  She wants to invest the $800 million the tax would raise in the state’s public schools, community colleges and universities, all of which suffered massive cuts over the past four years.

Massachusetts Governor Deval Patrick is promoting some r evenue raising ideas he says are supported by the public.  His $230 million revenue package includes a 50 cent per pack increase in the cigarette tax (bringing the total to $3.01), increases on other tobacco products, expanding the bottle bill so that a wider range of beverages require a redeemable nickel deposit, and taxing candy and soda at the state’s 6.25 percent rate (both are currently exempt from taxation).

Rhode Island After failing to gain legislative support last year for his reform-minded and sensible tax plan, Governor Lincoln Chafee has offered up a hodgepodge of tax changes this year he thinks lawmakers can stomach.  Chafee’s $88 million tax package includes some modest expansion of the sales tax to items such as taxi and limousine rides and pet services.

Photo of Christine Gregoire via Studio 8, photo of Deval Patrick via Green Massachusetts, and photo Jerry Brown via Steve Rhodes Creative Commons Attribution License 2.0

Governor Martin O’Malley’s budget has been circulating for a few days, and it seems people are just now  turning their attention to one of its smaller tax changes, that is, the Governor’s proposal to end the tax exemption for digital downloads of things like software, songs and magazines.

Maryland’s House Minority Leader had some predictably harsh words for O’Malley after learning of the proposal, but it’s hard to argue that the state should be taxing books and CD’s bought from Maryland retailers, while not taxing digital versions of the exact same products purchased over the Internet.  Viewed in that light, it’s more than a little confusing why the House Minority Leader apparently views this proposal as some kind of revenue grab.  If it’s reasonable for Maryland’s sales tax to apply to all the books, CD’s and other similar products purchased within the state’s borders, the governor’s proposal is also reasonable.  The fact is, this change would simply update the state’s sales tax code to take account of the changing ways in which Marylanders are doing their shopping.

Just as taxing services and online sales is the right response to a changing consumer marketplace, so is a tax on digital downloads.

Photo of of Governor Martin O'Malley via Chesapeake Bay Program Creative Commons Attribution License 2.0

On Tuesday, the Blue Ribbon Commission on Maryland Transportation Funding voted to recommend a set of tax and fee increases that would boost funding for the state’s roads and transit systems by some $870 million annually.  The largest component of those reforms is a long-overdue increase and restructuring of the state’s gas tax, which has been unchanged for nearly two decades and lagging behind the cost of everything else the tax pays for. These recommendations should have a major impact on the transportation funding debate expected when the legislature convenes in January.

The proposed 15 cent increase in the state’s gasoline tax, phased-in over a three year period, is smart because Maryland’s fixed-rate gas tax (23.5 cents per gallon) hasn’t been raised since 1992, and this change would return the tax roughly to its previous buying-power (that is, adjusted to consider the rising cost of road construction).

The proposal is something legislators and their constituents should get behind because poor road conditions and traffic congestion are estimated to cost the average Maryland driver over $2,200 in vehicle repair, gasoline, and safety costs each year.  The gas tax increase, however, should only cost the average driver about $77 per year according to a forthcoming Institute on Taxation and Economic Policy (ITEP) analysis.

But while the 15-cent increase is vitally important to Maryland’s roads and transit systems today, this change will only be a Band-Aid fix if legislators fail to combine it with another one of the Commission’s recommendations: allowing the rate to rise alongside the rising cost of construction.  Florida already links (or “indexes”) its gas tax rate to the general inflation rate, and thirteen other states allow their gas taxes to grow alongside gas price growth.  Just a few months ago, a commission in Pennsylvania proposed a similar measure that would allow their tax rate to grow over time with the price of fuel, and an influential Republican legislator there declared just last week that he would introduce legislation containing that reform.

These gas tax reforms are desperately needed because Maryland’s transportation system, like nearly every other state’s, is vastly underfunded, and for many daily commuters, time can be even more important than money.  Baltimore was ranked as having the 6^th worst traffic congestion in the nation, and the DC area as having the absolute worst.  Recognizing that these shortcomings have real costs in terms of lost productivity, both the Maryland Chamber of Commerce and the Greater Baltimore Committee have come out recently in support of the gas tax increase.  And Maryland Governor Martin O’Malley also appears likely to support the increase.

Enthusiasm for the gas tax increase, however,  is only justified if it includes provisions to protect the lower income Marylanders who are likelier to feel its effects. However overdue this tax may be, it remains, like many of the fee increases being proposed, a regressive change – meaning it will disproportionately impact low-income families relative to their incomes.  Seven states currently offer low-income tax credits designed to offset the effect of these sorts of “regressive” consumption taxes, and most states (including Maryland) offer similar credits that accomplish broadly the same goal. 

If Maryland’s gas tax update is paired with offsetting relief provided via low-income tax credits, it’s a winning proposal with widespread benefits that deserves support.

Photo of Maryland Road Construction via Bank Bryan Creative Commons Attribution License 2.0

We couldn’t help but laugh when we saw the title of last week’s Wall Street Journal editorial.  For those of you that have followed the “millionaire migration” debate, it should be a very familiar one.

First, a little background: Over the last couple years, the Wall Street Journal has run three editorials claiming that state income tax hikes in Maryland and Oregon were major factors in the shrinking of those states’ millionaire populations.  According to the Journal, while the recession did reduce the number of rich folks in those states, the tax hikes enacted by the “redistributionists” and “class warriors” (to use their words) just had to have something to do with it as well.  No self-respecting rich person would sit around and pay more in taxes when they could quit their job, pull their kids out of school, and move to a state with lower taxes on the rich – like South Dakota.

Our sister organization, ITEP, went to great lengths to point out the problems with the Journal’s migration theory, responding to those editorials in three separate reports, one letter to the editor, and a Huffington Post piece.  All of those publications analyzed official state data and reached the same conclusion: there’s no evidence to suggest that the shrinking of Maryland and Oregon’s millionaire populations was anything other than a predictable result of the recent recession.

That’s what makes last week’s Journal editorial so amusing.  It’s been a little over two years since the Journal first popularized the Maryland millionaire migration myth with a 2009 piece titled “Millionaires Go Missing.”  Apparently, members of the Journal’s editorial board have short memories, because they’ve recycled that same title, but used it to argue the opposite point (and the one ITEP insisted was the case all along): new federal tax data shows that the recession caused a huge decline in the number of millionaires all across the country.  “Told you so” just doesn’t seem sufficient.

Looking back, it’s really unfortunate how much influence the Journal’s made-up story about “Maryland’s fleeced taxpayers fighting back” (as the sub-title of their 2009 article read) actually had.  It resulted in countless misinformed debates about a “millionaire migration” phenomenon that never even existed, and played no small role in the eventual defeat of efforts to extend a very good tax policy in Maryland.

But even against that backdrop, perhaps we should all feel just a bit relieved right now.  At least the Journal opted not to use the new federal data to concoct a fiction about wealthy Americans migrating to low-tax Mexico.  Well, at least not yet.