Something Has To Give

At the end of last week, new Democratic legislative leadership made a very important declaration:

Maryland’s new legislative leaders flatly ruled out raising income, property or sales tax rates this year to pay for sweeping education measures.

The declarations from new House speaker Adrienne A. Jones and incoming Senate president Bill Ferguson means policymakers will search elsewhere for hundreds of millions of dollars to launch an effort designed to make Maryland’s public schools the envy of the world.

In separate interviews with The Washington Post this week, the Democratic presiding officers each vowed to pass the entire costly education package, known as the Kirwan plan, without resorting to traditional tax hikes.

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“It’s not necessary,” said Jones (D-Baltimore County), who was elected speaker in May.

On one hand, that sounds like a victory for taxpayers. And it is. Democrats have already squeezed as much out of Marylanders in the form of state income, property, and sales tax increases as they possibly can. But, as always, there’s a catch. Democrats are also looking at ways nickel and dime you to death in other ways:

The Democratic leaders each said Maryland’s outdated tax code overlooks key elements of the digital economy and suggested that some of today’s tax-free Internet commerce could soon be taxed to help pay for the measures.

Digital downloads and subscriptions to streaming services such as Hulu, Netflix and Amazon Prime Video, for example, are not subject to the state’s sales tax.

“We are going to have a variety of revenue options on the table that are not increasing the property tax, they’re not increasing the sales tax rate, they’re not increasing the income tax,” said Ferguson (D-Baltimore City). “They’re targeted revenue measures that really better match the modern economy….”

….Ferguson and Jones, however, declined to identify specific ways they plan to come up with roughly $825 million a year to pay for the first stage of measures, saying those details will be revealed at some point after the General Assembly convenes Wednesday for its annual 90-day session.

Speaking in general terms, they said options such as expanding the taxation of Internet commerce, legalizing sports betting and discontinuing some business tax credits — in addition to money from casinos — could collectively generate enough cash to launch the first three or four years of the program.

And then we get to the most important piece of all:

They did not offer plans to pay for the full implementation of the education measures, which are expected to cost $4 billion per year a decade from now. Until this week, they had not publicly ruled out any tax hikes to raise revenue.

So, to recap:

  • Democrats are ruling out across the board increase to the state income, property, or sales tax;
  • But Democrats are looking at raising taxes in other ways, such as altering tax deductions for both individuals and businesses, creating new income tax brackets, making adjustments on what is and is not subject to the sales tax;
  • And at the end of the day, Democrats still want to fully implement the Kirwan Commission recommendations while *still* not being totally sure how they are going to pay for it.

So Democrats have decided that they are going to try to create a new patchwork of smaller tax increases, and combine that with other new sources of revenue such as legalized marijuana, legalized sports betting, and whatever else they can come up with.

New Democratic leadership is certainly finding out that leadership isn’t all that it’s cracked up to be.

Realistically, the Kirwan Commission recommendations remain what we have always known them to be: completely unaffordable without massive increases to the income, sales, and property tax rates. Leadership ruling out these tax increases does not change the basic math of here. The current revenue increases that are still on the table for this upcoming session does not and cannot fully fund Kirwan. Democrats may want to tax your Netflix, Hulu, and Disney Plus subscriptions, but that isn’t going to be enough to pay for it all.

Democratic leadership is going to find themselves between a rock and a hard place. On one hand, they are currently listening to the people of Maryland who have already expressed that they oppose anything more than the smallest of tax increases to pay for Kirwan. On the other, the Democratic base led by the Maryland State Education Association has been supporting the Kirwan Commission for years, and have been promised by Democrats that the Kirwan Commission recommendations will be passed and funded by the General Assembly.

Something is going to have to give here. Ferguson and Jones are either going to have to break their word to the voters or break their word to the pro-Kirwan activists. Just another interesting piece of the puzzle as we head toward the open of this year’s session on Wednesday.

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