Who’s Going to Pay For Kirwan? You Are

Yesterday the Kirwan Commission adopted their final recommendations and will now send them to the General Assembly. The Commission adopted the recommendations as presented, recommending spending that will be nearly $4 billion a year in new K-12 public education spending.

None of this is a surprise: Democrats rigged the Commission from the get-go to get the result they wanted. The only three Commission members who voted against the recommendations were, unsurprisingly, the three Commission members who were not Democrats.

But now that the Commission has moved on, it’s up to the Hogan Administration and legislative Democrats to figure how if and how to pay for this massive price tag on these recommendations that are going to blow up the state budget for decades to come.

So far, any number of funding mechanisms have been proposed to pay for Kirwan, including:

  • Sports gambling;
  • Legalization of Maryland, including government-run stores;
  • Changing the state inheritance tax so the taxes being with the first dollar of the inheritance;
  • Combined reporting for state-based corporations;
  • Closing of loopholes in corporate taxes;
  • Expansion of the sales tax to services;
  • Expansion of the sales tax to include applicability to digital downloads

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And that’s just the start of it.

Of course, the thing that Democrats don’t want to talk about it is that even legalizing all of these things or passing all of these tax hikes won’t pay for the full state government share of the Kirwan Recommendations. It won’t even be close.

And that doesn’t even take into account the share owed by county governments., many of whom are already capped out as to how much they can raise in taxes or at the limit of how high they can feasibly raise their taxes. There isn’t much more blood that counties can get from the stone.

Let’s just say there’s a reason why the Kirwan Commission didn’t want the public to know about the tax bomb they were planting for our state.

Ultimately, the tax hikes that Democrats are proposing to pay for Kirwan can’t fund the utopian proposals the Commission wants. Ultimately that means one thing; an income tax hike and a general sales tax hike will be part of the Democrats proposal.  The severity of those proposed tax hikes will probably be dependent too on local aid. At some point, counties are going to wave the white flag and say that they cannot pay for what Kirwan proposes. Instead of reconsidering the feasibility and effectiveness of the entire plan as a rational person would, Democrats will likely instead take the burden of local funding on behalf of the state, necessitating even more state money being dedicated to Kirwan. This is even more likely now that both State Senate and House of Delegates leadership represent Baltimore, who owes the most money in local aid according to the funding recommendations.

It’s a gloomy economic picture, that’s for sure.

Of course, each of these proposed tax hikes have their own issues that would cause problems for the Maryland economy writ large:

  • Sports gambling will never generate the revenue people expect it will since we are so far behind the curve compared to our neighbors in Delaware, Pennsylvania, and West Virginia;
  • The money brought in through legalized marijuana will be muted by the increased cost on both government and in human terms legalization has brought in other states;
  • Inheritance taxes will force the wealthiest Marylanders, those intended as the targets of higher inheritance taxes, will leave the state. The burden of paying higher inheritance taxes will be carried by those inheriting family farms and small businesses;
  • Combined reporting for state-based corporations and closing corporate tax loopholes will just mean companies relocate elsewhere;
  • Expansion of the sales tax to services has been on the Democrats agenda for over a decade, and it’s one that will wreak havoc on the economy;
  • Expansion of the sales tax to include applicability to digital downloads will have an unknown impact, but the market finds a way.
  • Higher-income taxes will never raise revenues since those who are positioned to move to another state will;
  • And higher overall sales taxes will result in people either changing their spending habits or driving across the state line to buy their goods there, particularly those who live close to Delaware and its tax-free shopping.

On top of all of this, this assumes that revenue forecasts from these tax increases meet projects, something that projections on higher taxes never do. On this week’s episode of the Conduit Street Podcast, Michael Sanderson noted “You can’t necessarily assume things will be static. At some point, people react to changes in tax policy.” This is something that we wrote about early in the 2010’s when “How Many Walks” came out which noted that “[s]ince 1995 Maryland has lost 27, 433 residents, taking with them a net $6.5 billion in annual adjusted gross income.  The majority of that wealth has been lost to Florida, North Carolina, Virginia, Pennsylvania, and West Virginia.” Much of that came during the O’Malley Administration’s historic and obscene run of over 40 consecutive tax and fee hike increases.

Well, I’ve got bad news for you. The tax increases that Democrats will propose to fund Kirwan are going to make Martin O’Malley look like a Republican.

As the 2013 study noted, many of those leaving Maryland relocated either to one of Maryland’s surrounding states or to Florida. If Democrats move forward pushing through these tax increases, the same thing will happen again. Those who are near retirement age will relocate to Florida to protect their hard-earned inheritance. Those large corporations that are the target of these proposed corporate tax hikes will close their operations here and move somewhere else, which not only will lower the theorized tax revenue but also put Marylanders out of work. People in the service industry who live near the state line will merely relocate their business to Delaware, or Pennsylvania, or West Virginia, or Virginia to take advantage of lower tax rates there. People who have jobs in Maryland and live in Maryland may move across the border in order to have their income taxed at a lower rate.

This isn’t theory. This isn’t a prediction. It’s a spoiler. We’ve seen the dramatic effects of the Democrats gargantuan tax hikes have had on individuals and had on the state economy. Those were 27,433 real people who left during that time period. That was $6.5 billion in real money that left our state economy. That money never came back. And more money will go out the door if Democrats go on with this.

So ultimately, at the end of the day, who is going to wind up paying for the Kirwan Commission tax hikes? It’s going to be small business owners located in the center part of the state. It’s working families in Baltimore City who don’t have the resources to move somewhere else. It’s communities who lose small, family-owned businesses when sons and daughters inherit businesses from their late parents and can’t afford the tax bill. It’s all of us who eat local fruits, vegetables, and animals when family farms are sold to developers to pre-emptively avoid paying inheritance taxes on valuable farmland.

Democrats would like you to believe that they can soak the rich and pay for the Kirwan Commission. But that’s just not true. They won’t end up paying the taxes to fund what amounts to little more than a handout to the teacher’s union. You will.

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