O’Malley’s Tax Parade

Maryland governor Martin O’Malley (D) is parading around the state talking about his plans to revamp Maryland’s tax code. With the state facing a $1.7 billion dollar deficit next year (and I get the feeling that amount is a rosy projection), O’Malley and the Democratic cabal in Annapolis are having to increase taxes–or so they say.

I will give O’Malley credit for one thing, revamping the income tax is probably needed, since the current tax schedules are to a certain out of date and for most people anyway, flat. I don’t really have a problem with a 6 percent marginal rate for couples making more than $200,000 and I think that lower the marginal rate on the first $22,500 in income is fine.

However, there are lots of items in the tax package or not included that frustrate me. First, we are going to tax corporations more than we tax individuals. Of course, who cares about corporations, they aren’t really people and in a Democratic state corporations are bad. Well, here’s the rub, corporations employ people and they pay taxes. Unless you work for yourself (and you may be a corporation) or you work for the govnerment, chances are you work for a corporation of some sort. Corporations makes money by selling goods and services, the sales of which are taxed as corporate profits. The more a corporation pays in taxes the less it has to spend on things like, expansion which generated jobs, which generates income for people, etc. The economic argument has been made many times before.

But I would like to propose something of a radical idea–let us tax corporate income at the same rates as individuals. That is instead of an 8 percent corporate tax rate, why not have a 6.5 top rate (the top rate for individuals proposed by O’Malley). My rationale is this, for the most part the law treats corporations in much teh same way as it treats humans. Sure there are operational differences that affect the law, but when it comes to money, corporations are not all that different from people.

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Of course the idea would never fly in Maryland–at least not right now and I know of no other jurisdiction that taxes corporations at the same top rate as individual taxpayers, but that doesn’t mean it is not workable.

Paying for the corporate tax cut would not be all that hard. First, as George W. Bush has demonstrated, tax cuts actually generate more revenue. Second, the state could do what it already should be doing, cutting spending. Third, a lower corporate tax rate means increase corporate presence in the state–more revenue from new sources.

The only other aspect of the tax plan that I don’t see is changes in the piggyback tax. Maryland is one of the few states that allows counties to impose an additional income tax on its residents, as high as 3.2 percent in some counties. Combined, the richest Marylanders would be paying nearly ten percent tax on their taxable income, this after federal taxes. To be honest, I would rather see a median range of 5.5 to 6 percent for state wide taxes and the elmination of the piggyback tax.

I come from Florida, a state were there are no state income taxes. Florida does well on its sales tax and revenues generated as a result of it tourism industry. Maryland may not be able to do away with the income tax, but it surely doesn’t need the tax to be as high as it is.

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