As I was travelling to Chesapeake High School on Tuesday night for the District 3 Budget Town Hall, I was eagerly listening to a briefing from Governor Moore’s staff on what would be in the next day’s budget announcement.
I was impressed.
Governor Moore had already made it known that the structural deficit that the Department of Legislative Services (DLS) has been warning about for seven years could no longer be ignored. He’d announced that his budget would close a $3 billion gap with $2 billion in cuts. My question was how those cuts would impact our residents and county governments, and what kind of a revenue package could generate the other billion.
I got my answers, and I liked them. I liked them because they were progressive, pro-business, and protective of local governments, for the most part.
When I say progressive, I don’t mean left. In fact, like much of what Governor Moore does, they are a creative mix of the best ideas that come from all across the political spectrum. For instance, he is proposing that after decades of debate, we should finally move forward on the combined reporting that ends the tax loophole for multi-state corporations, a loophole that our local businesses don’t enjoy. At the same time, he proposes a reduction of the corporate tax rate that all businesses pay.
He is well aware that federal income tax rates on top earners have steadily dropped for the last five decades, and that the middle class has paid the price. And he knows that to grow our Maryland economy, we need to strengthen the buying power of consumers. So he’s offering income tax savings to the bottom two-thirds of earners, no change for the next 22% and an increase only for the folks whose taxable income is above $500k. It’s not a huge increase - just 0.5%, plus another 0.25% for income above $1 million - but it generates most of the missing billion dollars.
The tax reform package has some other interesting pieces as well, like the tax on cannabis sales going up as federal legislation creates new benefits for sellers by allowing them to deduct expenses as other businesses do. And a retail delivery fee of 75 cents to help pay for the impacts from Amazon and other trucks that now wear down our residential roads.
In years past, Maryland transferred costs onto the books of local government when times were tight. Governor Moore told his staff that wasn’t a fair option. There will be some cuts that trickle down to counties, to the tune of $157 million statewide (we roughly calculate county impacts at 10% of the statewide numbers), but that will be offset by a simplification of the tax code that benefits local governments: ending itemized deductions but doubling the standard deduction.
I know, it starts to get complicated, as tax policy always is. Understanding the mechanics of these proposals is hard, and calculating the macroeconomic impact, the impact on economic growth and family well-being is even harder.
That’s the part that makes me optimistic. The budget is an annual plan to get government through the year without a deficit, but there’s a long-term economic strategy that accompanies it. Things like ending state investment in the Enterprise Zone program, a well-intentioned strategy that never showed results, and shifting support to things like the proven Construction Ready Site program whereby properties are offered for economic activity prepared and pre-approved.
The Governor’s proposed budget is no more than a proposal to the Maryland General Assembly. But the responses I’ve heard from legislators on both sides of the aisle suggest to me that it’s a welcome start. Cuts will be evaluated thoroughly, and so will the tax reform package. I may learn of details that are hard to accept, from our county delegation and from department heads. If so, I’ll speak up.
But I hope that everyone looks at what’s being done here in the context of what we know will be coming out of Washington. The new Congress and the incoming President have promised that task #1 is to extend and expand tax cuts for the wealthiest Americans while cutting what’s left of our social safety net. The timing is right to ask those same taxpayers to invest some of their savings in local teachers, public safety personnel, and services for our neighbors in need.
As for me, I am gratified that we in the county resisted the temptation to use federal recovery funds to balance our operating budgets in recent years. We have no structural deficit to fix, and are able to continue providing the services we enjoy today without asking more of our taxpayers. If we want more, we’ll need to pay for it, and it should always be that way.
Until next week …