Expect large tax hikes in Maryland…and fast

28 August 2023- It’s well publicized that Maryland is very close to a budget precipice. The state continues to spend all the while keeping Hogan Era tax and business friendly policies. That may be coming to an abrupt end.

One of the organizations sounding the alarm is the Maryland Public Policy Institute. After last week’s Association of Counties Summer Conference, they released the following statement on the state of the state.

Gov. Wes Moore spoke at the Maryland Association of Counties Summer Conference last week, warning local leaders of the dire fiscal troubles facing Maryland’s state government and calling vaguely for fiscal responsibility. Despite repeating the word “discipline” 19 times, he ignored the primary cause of the impending state budget deficit, provided no realistic solutions, and evaded any mention of the tax hikes that will likely come.

The state Department of Legislative Services revealed in June that Maryland will face a budget deficit starting next year that will grow to $1.8 billion in five years. A primary cause of the ballooning shortfall is the high cost of the so-called Blueprint for Maryland’s Future education plan, also known as the Kirwan Plan. The department noted in its evaluation of the state’s financial condition that “the cash and structural budget outlook deteriorates…due to the costs of ongoing K-12 education enhancements.”

“Gov. Moore’s speech to county executives made little sense,” said Christopher Summers, Maryland Public Policy Institute president and CEO. “His homage to fiscal restraint is appreciated. However, it’s preposterous to say that fiscal responsibility is your “north star” while simultaneously ignoring the Kirwan plan, which will cost state and local governments more than $40 billion over the next 10 years. By not deigning to address the expensive mammoth in the room, the governor is leading us all to the only other option available to government: tax hikes.”

Backers of the Kirwan plan have often repeated the notion that it will cost $4 billion by 2033. However, the true cost will be more than $4 billion annually. Thus, it will cost the state and local governments more than $40 billion by 2033. This came as a surprise even to Democratic politicians like Baltimore Mayor Brandon Scott who called the cost to the city a “gut punch.”

Some counties have already enacted property tax hikes to cover some of the costs. A poll commissioned by the Institute and conducted by Gonzales Research & Media Services found that 63% of Maryland voters oppose these tax hikes needed to pay for the increased education spending.

“Gov. Moore did make one correct statement in his speech when he said, ‘our budgets have gotten bigger over time, but our economy has not kept pace,’” said Summers. “Unfortunately, he then went on to incorrectly infer that the reason the state’s economy hasn’t grown is because the state government hasn’t spent enough money on his preferred projects. This backward understanding of economics is troubling considering our high cost of living and high taxes are the primary drivers of our lackluster economic growth.”

In his speech, Moore primarily laid blame for the deficit on “the economy” not growing enough to provide government with more tax revenue, noting that the state is ranked “47th in the nation for economic momentum.” He went on to proclaim that “growth is a choice,” inferring that government can choose to make the economy grow by spending tax dollars in favored ways.

But according to an analysis of Internal Revenue Service migration data analyzed by the Tax Foundation, it is Maryland’s already high government spending and high taxes that are driving businesses and worker away.

“While Gov. Moore correctly noted that we are 47th in economic momentum, what he seems to not understand is that we are 45th in total tax return funding lost to other states,” Summer said. “The Tax Foundation and IRS revealed that our state lost more than $1.8 billion in total personal income in 2019 alone—before the pandemic. And the states gaining people, businesses, and tax revenue are the ones with lower tax rates.”

Maryland Democratic leaders have consistently given rhetorical credence to a commitment to fiscal responsibility. In December, Senate President Bill Ferguson, a Democrat from Baltimore, said, “In the Legislature, we know how to be pragmatic, and we know how to spend responsibly while balancing our state’s most essential needs.”

“The truth is that the words of the governor and Democratic leaders in the legislature do not match their actions,” said Summers. “So long as they keep spending irresponsible sums on their priorities, like their bloated education plan, Marylanders will have to prepare themselves for tax hikes in the coming years. And the state government will, consequently, watch even more of our residents and businesses leave.”