Across Maryland, people are struggling to pay rent, put food on the table, and meet other basic needs amid the COVID-19 pandemic. Many are rightly calling on state leaders to do more to support our communities.
Unfortunately, even in the best of times, our inequitable state tax code doesn’t provide the state with adequate resources to fund all the services we need and rely on, let alone respond to new challenges.
The General Assembly has the opportunity this year to accomplish two vital goals: generate the revenue needed to meet the state’s immediate and long-term needs, while also making our tax system fairer.
The need for raising state revenue is clear. The state must provide financial support to families and small businesses hurt by the economic downturn to help them rebuild their lives. The state must also continue to spend on ongoing COVID testing and the rapid deployment of vaccinations.
Maryland is also facing a long-term revenue shortfall. Simply put, our revenues are not adequate to meet our community needs, such as expanded support for public education, better transportation, environmental protections and programs to protect our most vulnerable.
The General Assembly must act to ensure we have the revenue needed to support families through this pandemic and make the long-term investments that allow our communities and our economy to thrive.
At the same time, lawmakers must deal with fundamental flaws in our current tax system. Today, it is upside down, meaning the wealthiest 1% pay a smaller share of income in state and local taxes than everyone else. And, it is full of costly loopholes that benefit large, multi-state corporations.
The Maryland Fair Funding Coalition, made up of more than 25 organizations, has embraced a fair tax plan that would accomplish these goals.
The legislature should begin by overriding Gov. Larry Hogan’s vetoes of revenue measures passed last year, including a tax on large digital advertising sellers. The digital ad market is exploding in size, and we should make sure that Big Tech firms like Google and Facebook pay a modest share of their profits in taxes in Maryland, a state where they generate enormous revenue.
We should also close loopholes that allow large multistate corporations to avoid paying taxes on revenue generated in Maryland. More than half of other states have already closed these expensive loopholes, and the legislature was on its way to passing such legislation in 2020, when the session ended early as the pandemic hit. It’s time to finish the work on that measure, which would raise over $120 million per year.
Fundamental reform is also needed in the individual tax system. Today, Marylanders earning more than $250,000 per year pay a smaller percentage of their income in state and local taxes than the average household. This is simply unacceptable. We can make our tax system more equitable by raising income tax rates modestly on the top earners, cutting them for those at the lower income levels and leaving them essentially unchanged for those in the middle. This reform would also raise at least $600 million per year to support the public services we all rely on.
There are other areas that demand action. For example, our system allows many large LLCs to pay less in taxes than corporations. This provides no economic benefit and allows these LLCs to avoid making a fair contribution to the public services that make the state a good place to live and do business.
These ideas are extremely popular with the public and have gained even more support during the COVID-19 pandemic. A full 62% of registered voters believe some people do not pay their fair share of taxes, according to new polling by OpinionWorks, a respected Maryland pollster.
When it comes to specific tax reforms, support is generally even higher. The poll found 78% support ensuring that large, multi-state corporations pay taxes on income earned in Maryland. And 72% said they support legislation that would make our income tax system more balanced for individuals, by reducing the tax rate for households earning less than $80,000, raising it for those earning over $250,000 and keeping it unchanged for those in the middle.
Many Marylanders worry about supporting those in our communities who are struggling financially and support responsible revenue reforms as the solution. And many Marylanders and Americans are growing more concerned about fairness as the gap between the richest and poorest grows.
As we deal with the COVID pandemic, it’s time for our elected leaders to think more broadly and reform our tax system to make sure it is fair and generates the revenue needed to maintain a healthy and strong state.
Benjamin Orr is the president and CEO of the Maryland Center on Economic Policy. His email is email@example.com.