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The $431 million payoff [Editorial]

The number of jobs in Maryland decreased by 9,800 in January. The statewide unemployment rate remains high at around 6 percent (compared to 3.6 percent at the start of 2008), and projected state tax revenues have recently been adjusted downward by $238 million. Balancing next year's budget has required some "creative" accounting in Annapolis, including dipping into money that was supposed to be set aside for state pensions.

Under those circumstances, a tax break might even be in order, but surely lawmakers would want it focused on creating new jobs, particularly for communities like Baltimore or the lower Eastern Shore where the unemployment rates still hover near the double-digit mark.

Yet what have the distinguished men and women of Annapolis produced? A tax break that applies only the wealthiest of Maryland residents — and benefits them only after they are dead, to boot. On Thursday, the Senate approved by a 2-to-1 margin a gradual lowering of the estate tax by raising its exemption, eventually causing it to be tied to the level used by the federal government, which was $5.25 million last year and is raised annually to match inflation. As the House has also approved the move, it's likely to be soon signed into law by Gov. Martin O'Malley.

Even at the current exemption level of $1 million, Maryland's estate tax only applies to the richest 3 percent of estates. So call this measure what it is: An aging millionaire's tax break that is supposedly going to cause them to stop retiring in Florida.

Right.

We will grant you that Maryland has become an outlier when it comes to taxing the deceased. Most states have followed the federal government's policy (as unwise as it may seem), and it would be prudent at some point to raise Maryland's exemption simply as a matter of fairness.

But why now? The "crisis" of a wealth exodus is greatly overstated. Maryland has the highest number of millionaires per capita in the nation. By and large, their manor homes and penthouses appear intact and inhabited. They still tend to pay a smaller percentage of their incomes in taxes than working people thanks to the magic of capital gains.

As the stock market has been going great guns in recent years (including a robust 29 percent gain for the S&P 500 in 2013), starvation does not appear imminent. By and large, most taxable estates don't pay more than a few percentage points of their value to Maryland's comptroller anyway. And even those widowed or unmarried sole proprietors with multi-million-dollar businesses always have ways to structure their estates to avoid problems for their heirs.

Will this tax cut create jobs? Let's say for the sake of argument the rich are the "job creators" that some claim. Will it cause them to stop retiring elsewhere and somehow spend more lavishly while they are living in Maryland? The only certainty is that it will cost the state a huge sum in tax revenue — an estimated $431 million over five years. We have observed no measurable jobs "dividend" in states that have chosen to lower their estate taxes.

It's clear that the estate tax cut, a measure previously backed primarily by Republicans in Maryland, has taken on a remarkable life of its own this year as some kind of offset for raising the minimum wage. Governor O'Malley more or less acknowledged that, issuing a statement in the wake of the estate tax bill's passage Thursday that he hopes "the General Assembly will now finish the work of giving Maryland a raise and increase our minimum wage to $10.10 an hour."

But it's a high price to pay for a minimum wage hike that most Marylanders already favor and Democrats claim to support. So let's put it to voters bluntly: If you had $431 million to spare, is a tax cut for the ultra-rich where you would spend it? What about a tax break for small business? Or for targeted investment? Or at least for a sales tax holiday that puts money in the pockets of ordinary people?

A shout out to Del. Heather R. Mizeur, the only major candidate for governor who has spoken out against the estate tax proposal as the wrong priority when middle class residents are dealing with cuts in the state budget. Why so few of her fellow Democrats in Annapolis share her view is a mystery — and one that voters ought to ask candidates for governor and other state offices between now and the June primary.

To respond to this editorial, send an email to talkback@baltimoresun.com. Please include your name and contact information.

Copyright © 2015, The Baltimore Sun
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