Progressive Democrats’ Failed Tax Plan to Fund Kirwan Commission’s Spending
The top agenda item for Maryland’s Democratic legislative leaders this year is fully implementing the Kirwan Commission’s recommendations for increasing K-12 education spending. The price tag totals a staggering $32 billion over the next decade.
To put this number in context, the Maryland Department of Budget and Management estimates that paying for the proposals would require a 39% increase in the personal income tax, an 89% increase in the sales tax or a 535% increase in the state property tax.[i]
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The approach of some Kirwan Commission supporters, such as Montgomery Delegate Eric Luedtke (D-14), has been to ignore basic arithmetic and deny that any big tax increases are necessary.[ii] (To be sure, Luedtke has been a Montgomery County Public Schools Social Studies teacher and not a Math instructor.)
Even a student in an underperforming, post-Thornton school should be able to master the flaws in Luedtke’s calculations. The Kirwan Commission proposes $31.9 billion in additional spending over several years.[iii] The eventual spending target is $3.8 billion more per year. Dividing Kirwan’s total cost among 6 million people exceeds $5,000 per person.
More creatively, Montgomery County Executive Marc Elrich (D) has said that the state should legalize and sell marijuana itself. While initially reported in Bethesda Beat, Elrich’s pot stores sales idea might just as easily have been featured in the Onion. His approach involves state government-owned and operated marijuana dispensaries and is patterned after the Montgomery County government’s owned and operated liquor stores.[iv] However, since these liquor stores are actually losing money, how much Elrich’s government pot stores could raise for Kirwan remains very much a question mark.
The latest up for Kirwan funding are the Progressive House Democrats with a “Soak the Rich” tax increase plan. Their proposal claims to generate an estimated $1.4 billion annually. This is a little less than half of Kirwan’s yearly costs. Among the features, the Progressive Democrats would impose a new higher tax bracket for millionaires at 7%.[v]
During the O’Malley years, Maryland added four new income tax brackets, including a top rate of 6.25% on income over $1 million. At that time the higher bracket was supposed to add over $100 million to state coffers. In fact, revenues fell by $257 million because the number of “millionaire” tax returns tumbled sharply in a single year, a 30% drop in filers and a 22% drop in declared income. A Bank of America Merrill Lynch analysis at the time tracked federal tax return data on people who migrated from one state to another. It concluded that Maryland lost over a $1 billion of its net tax base by residents moving to other states.[vi]
Spoiler alert for the House Progressive Democrats: A lot of rich people have two homes. Shifting residences to those states such as Florida and Texas without a personal income tax can produce huge savings. Moves to Virginia or Pennsylvania can also produce savings. Not just millionaires have taken advantage of the differences. In the past decade, high tax states such as California, New York, and New Jersey have experienced population out-migration, especially to lower-income tax jurisdictions.
Commenting at the time on the state’s previous Millionaire Tax debacle’s aftermath, none other than former Democratic Governor Marvin Mandel critiqued the proposals in the Baltimore Sun that “they failed to move Maryland forward….They just rehash old, tired ideas that don’t work. Legislators supporting these measures fail to grasp a simple economic premise: that forcing employers and taxpayers to pay more reduces business activity, employment and the tax base.”[vii]
Marylanders have already seen the Kirwan and millionaire tax movie before. Despite the rosy promises at the time, Thornton Commission education spending increases failed to improve student performance in struggling jurisdictions. The O’Malley years “Millionaires Tax” was effectively repealed through a sunset after the state’s tax revenues from its top earners declined.
Albert Einstein is widely credited with saying, “The definition of insanity is doing the same thing over and over again but expecting different results.”
[iii] http://dls.maryland.gov/pubs/prod/NoPblTabMtg/CmsnInnovEduc/2019-Interim-Report-of-the-Commission.pdf See annual spending totals on table on p. 137