Gas tax, gambling, still broke [Editorial]

A tax on gasoline went into effect in Harford County and across Maryland on Monday, adding about 4 cents to the cost of a gallon. Next year, that will increase again, and the same thing will happen the following year, then in 2016, the final increase in the gasoline sales tax will take effect.

At least it will be the final increase in the rate under the tax law that went into effect this week.

It is estimated that the state will take in an additional $600 million as a result of the new sales tax on gasoline, which is in addition to a flat per gallon tax of 23.5 cents the state has been charging. The reason given for increasing the tax charged on gasoline has been a desire on the part of the state to increase the solvency of the Maryland Transportation Trust Fund, a pool of money the state uses for a variety of transportation projects ranging from road repairs to commuter rail expansions.

The administrations of a succession of Maryland governors have been accused of "raiding" the transportation trust fund to balance the state budget. The problem with the state budget has been characterized as a "structural deficit."

Both the terms "raiding" and "structural deficit" are misleading to the point of not being helpful in public policy discussions of the state's financial policies. The transportation trust fund was established by the governor and General Assembly, and the governor and General Assembly have the authority to change what had been dedicated funding allocations for the trust fund. Failing to make appropriate adjustments to various government programs, be they called "trust funds" or "capital spending plans" or anything else is blind management; making changes hardly constitutes raiding.

The "structural deficit" is a similarly misleading euphemism. A family that amasses household bills that total $50,000 a year has a structural deficit if the household income available to be spent on those bills is $45,000. When it's a household, it means the family is spending too much. When it's the state, apparently it's a "structural deficit."

Understanding the word play is rather important in pondering the gas tax increase and other state financial issues for a variety of reasons, not the least of which is that another important and controversial bit of legislation approved and added to was supposed to have eased the "structural deficit" and made it possible to stop "raiding" the transportation trust fund. That legislation allowed for the opening of slot machine parlors, and has since been changed to allow for full blown casinos.

The state take from these ventures has been substantial, and it is on top of the state's already impressive take from gambling through the various lottery games. (It's worth remembering that the state's lottery take initially was supposed to have been dedicated exclusively for education, but ended up being "raided" to pay for other things. Now it's just part of what the state takes in.)

Then it came to pass that the take from gambling fixed neither the structural deficit nor the transportation trust fund issues. The sales tax rate ended up being increased and, effective this week, that sales tax is applied to gasoline.

Will this fix the problem?

Odds are it won't, and the reason is simple: as long as there is no emphasis on balancing the budget based on the taxes that are collected in the first place, there's no sense of urgency for being frugal with the taxpayers' money. It's the same rule that applies in a household. If the conclusion is that all the things that caused the expenses to hit the $50,000 mark are absolutely necessary, the result will eventually lead to bankruptcy because spending will tend to outstrip earning.

The reality with tax increases at the state level is taxes are generally rates, and as people get raises, the state's population grows and the economy generally expands, the state's tax take will increase without raising rates or levying new taxes. If the economy becomes less vibrant, that means the people being taxed are hurting in other ways and it probably isn't productive to increase tax rates, even if state revenue doesn't grow at anticipated rates.

Unfortunately, Maryland has chosen to take an ever-increasing percentage from the taxpayers by increasing rates, rather than taking an approach that is more sympathetic to the situation most taxpayers have found themselves in over the past few years.

Similarly unfortunate is the bizarre reality that the political schools of thought on the matter are so divergent. In Maryland, the solution is to increase the rate rather than engage in some better budget planning. At the national level, the impulse from the other extreme is to cut the rates in the hope that lower rates will result in increased growth to cover the cost of cutting taxes.

Neither approach appears rooted in the simple logic of living within your means. Unfortunately, simple logic rarely carries the day on such questions.

When gambling was expanded to include slots and table games, a responsibly managed state government should have been able to make cuts in other tax rates. Instead, the gambling payoff from a public policy standpoint was simply supposed to have prevented other taxes from being increased.

What we got, thanks to weak financial controls on the part of governors and legislators from both major parties, is an ever-increasing array of gambling options – which is OK – combined with the increased tax rates those gambling expansions were supposed to have prevented.

Still there is very meaningful discussion – though there is plenty of partisan rhetoric – of finding a better way to manage state finances.

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