When will Atlas shrug in Maryland?
So the special session is now history. A h/t goes to O’Malley Watch, both for pointing out this article with the tax increase details and his hard work on covering the special session, along with a salute to my cohorts at Red Maryland for their coverage of the gory details.
As is generally the case with tax increases, the producers in society are hardest hit while the “unwashed masses” take their blows more subtly. Let’s look at the effects on each group.
If you are Mr. Producer, a proprietor of a small business in Maryland, and work hard to achieve some measure of success at it, you’re soon probably going to wonder just how tough it would be to move to Delaware or Virginia. First of all, the corporate tax rate is going to increase from 7 percent to 8.25 percent – in real terms that’s a 17.9% tax hike on your company’s income. Further, if you happen to be in the computer business you’ll now be liable for collecting sales tax for your services and that’s not something easily added to the bill – there’s also the additional cost of state-created paperwork for your accountant.
Also, let’s say you have a good income from the business, how about $200,000. If you’re single, you have a bump in your tax rate from 4.75 percent to 5 percent, or a 5.3% increase. If you’re married and Mrs. Producer is also a producer making $300,000 a year, suddenly your tax rate jumps up to 5.5 percent, which equates to a 15.8% rate increase. The state is now taking appreciably larger bites at both ends, the business side and the personal side.
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Now I’ll cross the tracks to the poor side of town and look at the impact these things will have on Mr. Unwashed. I’ll say he makes $50,000 a year as an example.
He won’t have the income tax rate increase to deal with, and he does get an $800 additional credit against his income on tax day. If my math is correct, that means he has a break of $38 on his taxes ($800 times .0475). However, that break is quickly eaten up by the sales tax increase because if he spends just $3,800 on taxable items during the year (easy to do with just a couple big-ticket items, like say what you’d do with a tax refund) his “break” becomes a net gain to the state. This is even more pronounced if Mr. Unwashed is a smoker, since the cigarette tax is doubling to $2 a pack. At one time, Governor O’Malley was going to give a break to smokers if the federal tax also jumped, but that went by the wayside. So that $38 break is gone in just 5 1/2 weeks if Mr. Unwashed is a pack-a-day smoker.
Of course, if we’re talking about the Unwashed family the income tax break is a little better but they also lose out on the “sales tax holiday” that occurs just before the start of school. On the other hand, they could gain overall if they don’t mind getting on the state dole for health insurance since the state will spend more for adding new people to their coverage. It’s just the Democrats’ way of suckering more people into depending on government. (And doesn’t $6,000 per person – $600 million divided by 100,000 – seem really expensive for health insurance?)
The sad fact is that somewhere along the line, Mr. Producer is going to say “enough” and take his business and jobs elsewhere. And if Mr. Unwashed happens to be one of the employees of Mr. Producer’s company, he faces the hard choice of pulling up stakes and following his job to Virginia, Delaware, or some farther point; or trying his luck and attempting to latch onto one of the dwindling number of opportunities closer to his home. Either way, there’s going to be an interruption in his income or extra expense incurred, all because of these changes.
I’m no economist, but all this exercise needed was the application of common sense to the situation at hand. And it gives me an excuse to recommend one of my all-time favorite classic books, Ayn Rand’s Atlas Shrugged. (Conveniently, I just added an Amazon widget here on monoblogue so you can buy it from them and the capitalist in me will thank you.) While the book was written over 50 years ago, we’ve done little to heed its warnings and I think we’re going to hit that tipping point before the 100 year anniversary of the tome unless we start to act to reverse the trend.
Crossposted on monoblogue. (And hopefully linked anywhere common sense reigns.)