Like Maryland and other states New York has been levying a tax surcharge on high-income folks. New York's main income-tax bracket used to be 6.85 percent. But for the past three years couples' income of more than $300,000 was taxed at 7.85 percent. And couples' incomes of more than $500,000 was taxed at 8.97 percent.

Some in New York wanted to keep the millionaire tax. Gov. Andrew Cuomo disagreed, saying it would drive capital out of the state. Now he has mainly caved, agreeing with legislative leaders to reduce the rates a little but maintain the surcharge on higher incomes. They also agreed to lower rates for couples making less than $150,000. From the NYT:

Under the proposal announced Tuesday, for married couples filing jointly, income from $40,000 to $150,000 would be taxed at 6.45 pecent; from $150,000 to $300,000 at 6.65 percent; from $300,000 to $2 million at 6.85 percent, and over $2 million at 8.82 percent.

Changing the tax rates and brackets would allow the state to replace some, but not all, of the revenue to be lost when the so-called millionaires’ tax expires on Dec. 31.

Maryland's millionaire tax expired last year, but there is talk of reviving it.

Posted by Jay Hancock at 6:19 PM | Permalink | Comments (2)
Categories: Taxes
        

I'll be on the C4 show on WBAL today to talk about this column:

Gov. Martin O'Malley's notorious but temporary "millionaire tax" doesn't seem to have prompted rich folks to flee Maryland in much greater numbers than usual, according to the latest data. But that doesn't mean they're not fleeing, and it doesn't mean the tax should be resurrected, as some advocate.

Even without the millionaire surcharge that began in 2008 and expired in 2010, Maryland's income tax is sufficiently high to repel some of the wealthy. Add in this state's higher estate taxes, and we don't need another reason to push plutocrats into Virginia.

Read the whole thing here.

The theory of tax incidence says that those paying a tax increase are those who can least afford to avoid it. Conversely, those who can afford to avoid high taxes often do. People with million-dollar incomes can afford many things.

Posted by Jay Hancock at 9:58 AM | Permalink | Comments (1)
Categories: Taxes
        

As Internet commerce grows, so does the sales tax revenue that Maryland loses to the Web. Amazon.com and many other Web merchants do not charge sales tax, which means that the GPS unit you buy from Amazon doesn't come with the 6 percent extra you pay on the same product bought at Best Buy.

In 2010 Marylanders bought $3.3 billion in merchandise on the Web and through catalogs that they did not pay sales tax on, which cost the state $198 million in lost revenue, estimates a study published this afternoon by the staff of Comptroller Peter Franchot. All the items are taxable under law, but because out-of-state merchants such as Amazon don't collect a sales tax, it tends not to get paid. (You're supposed to file a "use tax" return on the computer you bought from Dell or the GPS from Amazon, but nobody does. (Oops. Stuart says Dell does collect Md. sales tax -- thanks.))

By 2020, sales tax revenue lost to the Internet and catalogs will be more than $300 million, the comptroller estimates. The money lost last year "is about 5 percent of sales tax revenues, and sales tax is a third of the general fund," says David Roose, director of Maryland's Board of Revenue Estimates. "It's not a small chunk of change."

A Supreme Court decision blocks states from ordering sales tax collection unless a merchant has a physical presence in the state. California and others have tried to get around this -- by trying to designate in-state merchants who sell via Amazon as a taxable "nexus," for example. Colorado has ordered out-of-state merchants to report transactions with Colorado residents, presumably so state revenuers can send out bills. But efforts by states to tax Internet goods haven't produced much result.

Maryland "can take some steps to try to address the issue, but they’re really working around the margins," Roose says. "To resolve the issue finally takes action from Congress.”

Posted by Jay Hancock at 1:27 PM | Permalink | Comments (13)
Categories: Taxes
        

Gov. Martin O'Malley says he is open to a Maryland gas-tax increase of 15 cents, which would raise Maryland's gas tax from 23.5 cents per gallon to 38.5 cents per gallon. By one measure -- gauging only the excise tax, and assuming other states don't raise their gas taxes, too -- that would make Maryland's fuel tax highest in the country. See the Tax Foundation's table below.

However states such as California add a regular sales tax on top of the excise tax, and Maryland doesnt. The Tax Foundation also counts other gas-related fees to try to compare apples with apples. Even at 38.5 cents per gallon, Maryland's total gas tax would be less than California's 2011 total of 47.7 cents per gallon. But Maryland would still jump from 27th highest to 6th highest, based on total 2011 rates. Other states, however, will probably raise their own gas taxes in the next three years. Connecticut's governor, for example, tried to raise the gas tax this year and may try again.   

Posted by Jay Hancock at 6:30 AM | Permalink | Comments (6)
Categories: Taxes
        

USA Today writes a "Math Tips For the Rest of Us" squib and in turn has to get some math tips from Dean Baker and Alex Tabarrok.

In USA Today's original item, one tip said: “That raise actually might not be as good as it looks. The extra money is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise.”

Alex and Dean correctly go bonkers. Tax brackets are marginal. If the rate under $50,000 is 10 percent and the rate over $50,000 is 40 percent, it doesn't mean you pay tax of $20,400 if you earn $51,000 -- or 40 percent on all your income. You pay 40 percent only on the amount that's more than $50,000 -- in this case, $1,000. A "cliff" is what fiscal pros call situations in which an extxra bit of income or assets subjects the entire amount to a new rate. Tax cliffs are pretty rare in this country.

Now USA Today has corrected the item, which now says:

A hefty raise might not be as big as it looks. Extra money could bump you into the next tax bracket, which means you’ll pay a higher tax rate on earnings above a certain threshold. Relax: Your earnings below that threshold are still taxed at the previous, lower tax rate.

Posted by Jay Hancock at 11:51 AM | Permalink | Comments (5)
Categories: Taxes
        

Chamber and Board of Trade types told legislators to be more like Virginia, Megan Poinski reports. Another message was one that doesn't get heard as often: Frequent fiddling with the business tax codes is also a burden. Businesses want consistency. Nick Sohr's story in the Daily Record on the same hearing is here. (Subscription required.)

Posted by Jay Hancock at 8:55 AM | Permalink | Comments (0)
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I find it extraordinary that Buffett is almost a lone wolf among the creditor class in delivering this sensible message. This was in today's NYT. Does anybody know any other plutocrats saying the same thing?

Job one for the 12 is to pare down some future promises that even a rich America can't fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million -- there were 236,883 such households in 2009 -- I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more -- there were 8,274 in 2009 -- I would suggest an additional increase in rate.

Posted by Jay Hancock at 11:57 AM | Permalink | Comments (30)
Categories: Taxes
        

MarylandReporter.com's Len Lazarick has accomplished something that has eluded me for years: getting somebody who moved because of Maryland's high taxes to go on the record. Maryland tax flight is real, but most folks changing their residence to Florida or Virginia don't want to be quoted in the paper, for obvious reasons.

Individuals who disclose their income and suggest that high taxes will change their behavior tend to get, uh, criticized, to put it mildly. Last year a guy at the University of Chicago opined that $250,000 a year wasn't really that much income and described how his household spending might change if the Bush tax cuts were allowed to expire. He was blasted and soon took down the post.

But here's MarylandReporter.com, reporting on GTI Federal's Mark Gaver changing his residency to Florida.

The move is not taken lightly. Ten generations of Gavers have lived in Frederick County since 1762; his wife’s family has lived in Maryland for eight generations.

“The move is primarily to get out of the cold weather, but the tax benefits are certainly substantial,” Gaver said in an interview.

Gaver earns about $750,000 a year. With state and local income taxes his top marginal rate comes to 8.5%. That’s more than $60,000 in taxes per year, a little less than the total income for half of Maryland households.

I've talked to many people like Gaver, but I could never get them to agree to be quoted. Maryland tax flight is real.

Posted by Jay Hancock at 9:20 AM | Permalink | Comments (30)
Categories: Taxes
        

That's John Isaacs' headline on his post on the 12-member "super-commission" in Congress charged with finding new spending cuts. Given that a failure to reach agreement will summon $1.2 trillion in automatic cuts, half of them aimed at the Pentagon, Isaacs puts the GOP's dilemma aptly:

So Republicans are going to have to choose. Is it the sacred cow of wealthy taxpayers who are protected or the sacred cow of defense?

It is one “Armageddon” vs. another “Armageddon.”

Stay tuned.

Posted by Jay Hancock at 12:54 PM | Permalink | Comments (2)
Categories: Taxes
        

From the Department of Legislative Services' briefing on services that are not subject to the 6 percent Maryland sales tax. The Senate Budget & Taxation Committee said the briefing was part of a hearing that was "educational" and not a road map to future taxes. Hmm. How do you like totally hypothetical taxes on this totally for-informational-purposes-only list of services?

Business Services: Employment; payroll processing

Entertainment Services: Health and fitness centers; golf courses

Financial Services: Financial holding companies; corporate managing offices

Information Services: Cable television; satellite television

Personal Services: Barber and beauty shops; parking garages

Professional Services: Engineering; legal

Repair Services: Automobiles; commercial machinery

Transportation Services: Couriers; taxis and limousines

Posted by Jay Hancock at 9:04 AM | Permalink | Comments (22)
Categories: Taxes
        

A few days ago Comptroller Peter Franchot said he didn't want to enforce the ban on online sales of premium cigars. He asked legislative leaders and the attorney general for their opinions. Now he has decided that he will refrain from enforcing the law until the legislature has an opportunity to fix it, probably in the fall's special session. Here is the entire letter:

Dear Concerned Citizen: Please be advised that effective immediately, the Office of the Comptroller will temporarily defer enforcement of the online sales ban on premium cigars, as defined in Business Regulation Article 16.5-101 (p), until the Maryland General Assembly has had an opportunity to consider legislation that would permanently repeal the ban.

As you may know, Comptroller Franchot expressed a preference to take this action --which would apply as well to telephone and mail orders of premium cigars --in a June 13 letter to the

Continue reading "Franchot: I won't bust online premium cigar buyers" »

Posted by Jay Hancock at 1:55 PM | Permalink | Comments (8)
Categories: Taxes
        

Yesterday I reported that Peter Franchot told General Assembly leaders that he would prefer not to enforce the ban, effective May 1, against shipping premium cigars direct to Maryland consumers. The law, part of a larger effort to increase regulation of cigars and pipe and chewing tobacco, effectively outlaws Internet cigar sales.

Smokers complained to Franchot, who requested the law, and he said he didn't intend for the statute to cover premium cigars, only cheap cigars and other tobacco sent in bulk. But he wanted to check with the legislature to see if it was OK not to enforce the law. Later in the day I talked to Senate President Mike Miller and a spokeswoman for House Speaker Mike Busch. They both said: the law is the law. From today's column:

"Neither the governor nor myself nor the speaker has the authority to suspend a law that was enacted by the General Assembly and signed by the governor," said Senate President Thomas V. Mike Miller.

Miller said he has never received such a request. "It's contrary to Government 101," he added.

Look, a lot of this is theater. Any law enforcement authority makes choices every day about what rules to enforce and which ones to overlook. In Baltimore you can blow through stop signs and make illegal right turns on red lights and are not likely to be cited even if a police officer is a witness. But the Man can't admit in public that some laws are more important than others. I would be quite surprised if anybody gets busted for premium cigars bought on the Internet.

Posted by Jay Hancock at 8:48 AM | Permalink | Comments (8)
Categories: Taxes
        

Maryland Comptroller Peter Franchot has reiterated that he did not intend recently passed legislation banning cigar shipments to apply to high-end cigars, and he has asked General Assembly leaders for permission to not enforce the law with regard to those products.

As previously chronicled, fans of fine cigars got angry over the ban on buying cigars over the Internet, passed in 2010 and effective this year. Franchot, who requested a wider law covering cigars, chewing tobacco and other non-cigarette products, got deluged with complaints last month from people who like to smoke $10 stogies on the golf course.

He quickly said that he didn't intend for the law to cover "premium" cigars and that he would suggest the General Assembly pass an exception for those products. The law was intended to crack down on smuggling of cigars, pipe tobacco etc. and to deter kids from making huge marijuana blunts by hollowing out cheap cigars. But smuggling and sales to minors aren't a big problem with high-end cigars, Franchot says. Legislators are talking about amending the law in the special legislative session in the fall.

The question then became, Would Franchot's office enforce the new law with regard to premium cigars in the meantime? We now have a partial answer. Here are parts from a letter he sent to House Speaker Mike Busch and Senate President Mike Miller on Monday.

... it would be my preference to defer any further enforcement activity by my Office until the legislature has an opportunity to take action. Out of deference to the legislative branch,however, I would respectfully request your concurrence with this stay of enforcement.

Please keep in mind that this stay of enforcement would only apply to the sale of those products that meet the statutory definition of premium cigars, and it would only remain in effect until the legislature has had an appropriate opportunity to repeal the ban. Should the legislature choose to leave the terms of the current legislation intact, we would act promptly to enforce the letter of the law.

While I recognize that this is an uncommon request, I do believe it is warranted in this particular case.

Premium cigars, I have been told, are anything over $2. I'll call Miller's and Busch's offices to see what they say.

Posted by Jay Hancock at 11:12 AM | Permalink | Comments (9)
Categories: Taxes
        

A revealing table and wise words from (conservative) Bruce Bartlett, from the NYT's Economix site:

Bartlett:

When Americans see these data they are usually incredulous that Europeans submit to such seemingly oppressive tax levels. Conservatives, in particular, tend to view freedom as a fixed sum: the bigger government is as a share of G.D.P., the less freedom there is for the people (if government consumes, say, 40 percent of G.D.P., then people are only 60 percent free).The late Milton Friedman popularized this idea, but even he thought that freedom would not be seriously threatened in Western democracies until government spending reached 60 percent of G.D.P. We are far away from that “tipping point,” as he called it; in 2010, total federal, state and local government spending amounted to 36 percent of G.D.P.

American conservatives tend to ignore the composition of spending; to them, just about all spending is equally bad. Europeans don’t have this attitude because their governments provide them with benefits from which all residents gain....

In short, a substantial portion of the higher tax burden that Europeans pay is really illusory. They are really just paying their health insurance premiums through their taxes rather than through lower wages, as we do.

Posted by Jay Hancock at 11:04 AM | Permalink | Comments (2)
Categories: Taxes
        

Now that consumer shipments of premium cigars have apparently been outlawed by the 2010 General Assembly, Del. Mike Smigiel says he'll introduce a bill in this fall's special session to make them legit again.

"The comptroller's office told me they had 300 complaints already," says Smigiel, a Republican representing Cecil, Caroline, Kent and Queen Anne's counties. "I have every indication from the comptroller's office" that they'll support a change making shipments of premium cigars (often defined as more than $2 apiece) OK for Web and catalog vendors. "We're working on this. We're going to fix it. It was an unintended consequence" of a bill requiring licensing of wholesalers of cigars and pipe tobacco. "It certainly was not meant to interfere with the individual" buyer of nice cigars by mail.

"We welcome the comptroller to do that. We opposed this legislation when it was introduced," said Craig Williamson of the Cigar Association of America. " We were disappointed to see the provision which prohibits Maryland consumers to purchase legal products from an Internet retailer."

What Williamson really wanted to know, however, about Comptroller Peter Franchot, was: “Do you know if he’s going to be enforcing it?" in the meantime before the ban gets fixed. "Everybody wants to know.”

I do not know the answer. Stay tuned.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (6)
Categories: Taxes
        

Sunday's column will be about the converse of Maryland's recent decision to allow wine shipments direct to consumers: Maryland's new ban on the shipment of cigars to consumers, which has smokers bombarding Maryland Comptroller Peter Franchot with emails. An excerpt from the column:

“Cigar enthusiasts across Maryland have flooded our emails and phone lines” with complaints, says Brian Berman, membership director for Cigar Rights of America, a nonprofit advocacy group based in Virginia.

Philadelphia-based Holt’s Cigar Co.... sent customers an email Tuesday describing the new Maryland law as “unconstitutional, anti-freedom, anti-choice and wholly un-American” and urged them to contact Franchot.

UPDATE: Here is a link to the full column, which begins:

Sometimes Bruce Parrish likes to smoke a Fuente Fuente OpusX when he mows his Westminster lawn. He can't buy the $20 Dominicans, described by Cigar.com as "perhaps the rarest and highest rated brand in the world," at his local tobacconist, he says.

So he takes advantage of the modern economy and orders them online from Pennsylvania, whence they arrive by mail. Or at least they used to.

Starting May 1 it became illegal to ship cigars directly to Maryland consumers, according to an interpretation of a 2010 law by Comptroller Peter Franchot. As a result, smokers have been bombarding Franchot with combustible emails.

Posted by Jay Hancock at 3:59 PM | Permalink | Comments (21)
Categories: Taxes
        

The right-leaning American Enterprise Institute utters the deficit amelioration tool which shall not be mentioned in certain circles.

What are the lessons to be learned from Sweden's handling of its latest financial and economic crises? Can Sweden's policies and institutional frameworks inspire US actions? Similar to the United States today, Sweden faced an excessive fiscal deficit and a ballooning debt in the nineties. At this AEI event, Sweden's minister of finance, Anders Borg, will explain Sweden's consolidation efforts, which were based on a mixture of expenditure cuts and tax increases.

Minister Borg will demonstrate that a robust fiscal policy framework, with an explicit expenditure ceiling and surplus target, as well as structural reforms, has helped maintain strong public finances and stimulate rapid recovery in the recent economic downturn.

Posted by Jay Hancock at 1:59 PM | Permalink | Comments (1)
Categories: Taxes
        

This is really really disturbing. It seems to reveal a side of the IRS that I never knew existed. According to the NYT's Joe Nocera, an IRS investigator basically stalked ultra-marathoner Charlie Engle because he wondered about how he supported his lifestyle.

The film, “Running the Sahara,” was released in the fall of 2008. Eventually, it caught the attention of Robert W. Nordlander, a special agent for the Internal Revenue Service. As Mr. Nordlander later told the grand jury, “Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time.” (He also told the grand jurors that sometimes, when he sees somebody driving a Ferrari, he’ll check to see if they make enough money to afford it. When I called Mr. Nordlander and others at the I.R.S. to ask whether this was an appropriate way to choose subjects for criminal tax investigations, my questions were met with a stone wall of silence.)

I always assumed you weren't investigated by the IRS unless they had some prima facie evidence of wrongdoing or you were subject to a broad and impersonal audit dragnet. Turned out that like millions of others Engle lied on a mortgage application during the housing bubble.
UPDATE: As his dad, Rich, points out and Nocera's article makes clear, there is a good case to be made that Charlie Engle didn't lie about his income on his loan applications. So he may be in jail for nothing.

In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments.

After acknowledging that he had been speculating in real estate during the bubble to help support his running, he said, according to Mr. Nordlander’s grand jury testimony, “I had a couple of good liar loans out there, you know, which my mortgage broker didn’t mind writing down, you know, that I was making four hundred thousand grand a year when he knew I wasn’t.”

Mr. Engle added, “Everybody was doing it because it was simply the way it was done. That doesn’t make me proud of the fact that I am at least a small part of the problem.”

The woman was wearing a wire, and now Engle is in jail. (Check out his blog here.) Amazing. I had no idea IRS operatives could tape you sureptitiously. I thought only criminal investigation wings of the Justice Department or state and local police could do that. No excuse for Engle to have lied to his lender, but the way he got nailed is quite scary.

Posted by Jay Hancock at 10:33 AM | Permalink | Comments (4)
Categories: Taxes
        

WMPT's Jeff Salkin and I yack about Maryland's high millionaire quotient and whether Maryland taxes are driving millionaires to Virginia, Florida etc.

Posted by Jay Hancock at 10:33 AM | Permalink | Comments (2)
Categories: Taxes
        

With Annapolis discussing extending Maryland's millionaire income-tax surcharge, it's time to talk again about how much of a disincentive to capital the state's taxes are. Maryland's personal income taxes are high relative to its neighbors. And Smart Money says Maryland is the second worst place to die, after New Jersey, from an estate/inheritance-tax point of view.

Yet Phoenix Marketing International says Maryland is No. 2 in the country in millionaires per capita. And New Jersey (also with high income taxes) is No. 3. (This is a strict definition of millionaire. You have to have $1 million in liquid assets; under their definition that doesn't count your house or your 401(k) plan.)

Hawaii is No. 1, which Erik Brynjolfsson says he can understand. But New Jersey? Tyler Cowen, former New Jersey state youth chess champion, responds:

why do millionaires love New Jersey? My answer: because it's really, really nice!

Especially if you are old. You don't have to live in New York or Philadelphia, and yet you have access to at least one of those cities, possibly both if you buy in Edison. You can have a splendid house in a nice, leafy neighborhood with reasonable public services, a socially excessive amount of parking, and good restaurants.

For smart young people, however, the nice parts of New Jersey are very much a net exporter.

That leaves Maryland. What are all these rich people doing here? How did they get here and why do they stay? Should we tax them more?

Posted by Jay Hancock at 9:12 AM | Permalink | Comments (14)
Categories: Taxes
        

David Brooks nicely explains a distinction that is lost on many on the left. My reposting of it here is not necessarily a defense of what Gov. Scott Walker is doing in Wisconsin. Walker's crusade is nakedly partisan and offers a double standard to government employees who vote Republican.

The corporate takeover of American politics is deeply troubling. But is that a reason to prefer another dubious alliance -- public-sector unions and their Democratic enablers -- as a counterweight? Here Brooks explains why public-sector unions are more problematic than private-sector unions:

That’s because public sector unions and private sector unions are very different creatures. Private sector unions push against the interests of shareholders and management; public sector unions push against the interests of taxpayers. Private sector union members know that their employers could go out of business, so they have an incentive to mitigate their demands; public sector union members work for state monopolies and have no such interest.

Private sector unions confront managers who have an incentive to push back against their demands. Public sector unions face managers who have an incentive to give into them for the sake of their own survival. Most important, public sector unions help choose those they negotiate with. Through gigantic campaign contributions and overall clout, they have enormous influence over who gets elected to bargain with them, especially in state and local races.

Jay here. This is an economics blog, and in economics it's all about the incentives. The incentives in the relationship between Democrat pols and government unions are corrosive. Loyalty to public-sector unions conflicts with Democratic public servants' loyalty to taxpayers and citizens. (Republican public servants, too. Look how Walker is pandering to the fire and police unions.) Of course, fealty to corporate overlords conflicts with Republicans' loyalty to taxpayers & citizens. But as I said, is one relationship less unwholesome than the other?

Posted by Jay Hancock at 1:06 PM | Permalink | Comments (13)
Categories: Taxes
        

Last week the Cenus reported that Baltimore lost 30,000 people from 2000 to 2010, dealing a crushing blow to folks who had hoped for evidence of a population turnaround. As I blogged, taxes and schools are a major disincentive to live in the city. So is crime, many commenters added.

But other cities have been in Baltimore's position and managed to bring residents and investment back within city limits. Boston and San Francisco, for example, say Stephen J.K. Walters and Louis Miserendino. And Baltimore can become just as successful and populated as they are if Baltimore mimics them in cutting property taxes -- substantially, they argue in a new economic periodical, Maryland Journal, published by the Maryland Public Policy Institute.

No, the politicians didn't cut the tax. Voters did, through California's Proposition 13 in 1978 and Massachusetts' Propisition 2 1/2 in 1980. Walters & Miserendino:

In California, where the inflation of the mid-1970s had led to crushing real estate tax burdens, voters overwhelmingly approved Proposition 13 in 1978, capping local property tax rates at one percent of properties’ 1975 values and limiting subsequent increases in assessments to two percent annually (until a property was sold). Overnight, San Francisco had to chop its tax rate by almost three-fifths. Elected officials predicted a budgetary disaster of biblical proportions. Yet almost immediately, and in spite of “stagflationary” macroeconomic conditions as bad or worse than those we are now experiencing, the city experienced a downtown building boom that broadened its tax base, staunched job losses, and began the process of repopulation and recapitalization that would make it a superstar.

In Boston, they say, sharply lower taxes also caused the turnaround:

Continue reading "Will big tax cuts bring population back to Baltimore?" »

Posted by Jay Hancock at 6:30 AM | Permalink | Comments (12)
Categories: Taxes
        

Business share of state’s operating funding. Approximately $2.5 billion of the state’s $13 billion in revenues to the state’s General Fund in 2008 was derived directly from business taxpayers mostly through corporate income taxes, individual income taxes, sales taxes, and property taxes, along with other industry-specific taxes. That amounts to 19.2 percent of the state’s general operating revenues.

What Fry neglects to mention is that, dollar-for-dollar, business gets more out of government spending in Maryland than in almost any other state. Check out the table below from the Council on State Taxation, but big-business lobby in state taxes. In the ratio of what it pays in taxes to what it gets in return, Maryland business is better off than business in any other state except Nevada.

The whole COST study is here. This is not an argument to raise Maryland biz taxes. It's a suggestion to put things in perspective. Here is the table. The lower the ratio, the more business gets in government services per tax dollar paid.

Posted by Jay Hancock at 10:50 AM | Permalink | Comments (5)
Categories: Taxes
        

David Kocieniewski and the NYT resume the conversation started by University of Chicago blogger/professor Todd Henderson about whether a family with a low-mid six-figure income is rich:

“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”

The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.

Posted by Jay Hancock at 9:58 PM | Permalink | Comments (13)
Categories: Taxes
        

It's one of the anti-taxers' favorite soundbites, and pilloried blogger Prof. Todd Henderson trotted it out the other day in what was otherwise an informative, fairly restrained post.

But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions?

The guy's a lawyer, not an economist, but he ought to know better. Even militant libertarians admit that the market fails when it comes to providing some public goods and that some taxes and collective spending are necessary to maintain a stable society. The military, for one. Police and fire departments. They won't exist -- or will work very badly -- without a government to tax citizens and pay for them. Roads, parks, poverty etc. A top-notch system of courts to maintain the property rights that are essential to capitalism. After we stipulate to these -- and who wouldn't but an anarchist? -- it's a matter of arguing what levels of taxation and government spending are appropriate.

Hilzoy, aka, Hilary Bok, professor of bioethics & moral & political theory at Johns Hopkins, explains it better than I can. Here are her thoughts, pulled from comments, in response to another commenter:

John20723: "what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions?"

Here's an answer:

A lot of what the government spends money on is public goods: things we either cannot buy for ourselves (e.g., national defense), that require powers we do not have (e.g., regulating the stock market, having embassies in other countries, enforcing immigration laws), or that are subject to other market failures (i.e., someone could, in principle, have built the interstate highway system for us, and we would all have benefitted, but in practice it works better to do this collectively.)

If the government were deciding for me whether I should get a flat-screen TV or go on vacation, I'd be upset. But when the government spends money on things I cannot purchase alone, like national defense or the FDA, that's not "it deciding how to spend my money"; it's our elected representatives deciding how much of our money we want to spend on public goods, and how much on private goods.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (19)
Categories: Taxes
        

Prof. Todd Henderson at the University of Chicago got probably more Web traffic than he anticipated when he wrote about the effect the expiring Bush tax cuts might have on his family. There's a bit of "who knows best how to spend your money, you or the politicians?" tendentiousness. But mostly it's a straightforward description of his family's finances -- $15,000 in property taxes, big mortgage, $500,000 in education debt for Henderson and his doctor wife etc. -- and how they might respond to higher taxes.

Henderson doesn't specify his family's exact income. He says only that's over $250,000 but not by a lot. Tyler Cowen quoted someone else saying it was $455,000, but has since recanted. Henderson:

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

There was a very hostile reaction, with Henderson being accused of "sniveling," "mendacity, ignorance, and small-minded cupidity" and other grave sins.

I suspect the Henderson household will find a way to adjust without canceling the cell phones and cable if the Bush tax cuts expire. Nevertheless it seems to be a family without much in the way of net worth, the traditional measure for "rich."

Posted by Jay Hancock at 9:46 AM | Permalink | Comments (38)
Categories: Taxes
        

Marta Mossburg had a good piece on the op-ed page last week on the huge number of "non-profit" institutions in Baltimore and the hundreds of millions in property tax revenue the city loses as a result. She got the latest numbers from the city and found that nearly 30 percent of the city's property, as measured by assessed value, is exempt:

Since 2000, the city has lost 2,000 properties from its tax rolls, according to the Finance Department. At the same time, the number of tax exempt properties has risen by about 4,800.City documents show that $15 billion of Baltimore's total of $53 billion in property is not taxable. That translates to $340.2 million in lost revenue each year at the city's tax rate of 2.268 per $100 of assessed value.

Loyola University's Stephen Walters tells Mossburg that it's a vicious cycle. Baltimore's property tax rates are a large disincentive for tax-paying businesses or individuals contemplating a move to the city. To a large degree only the tax-exempt can afford to relocate there. So exempt property as a portion of the city's tax base may continue to increase.

Posted by Jay Hancock at 8:57 AM | Permalink | Comments (2)
Categories: Taxes
        

Julie Bykowicz reports that Maryland had a year-end budget balance of $344 million because the economy and tax collection performed not quite as terribly as analysts had projected. People are already talking about how to blow it. Counties and cities want some of their cuts restored. State employees want to be reimbursed for one of their furlough days.

But it's way too early to start spending the money. Maryland's budget situation is still really dicey. Substantial slots money is probably at least a year away. The economy is highly questionable. The decent job growth Maryland had earlier this year, probably partly tied to temporary Census hiring, seems to have stopped. A double dip recession, while not being predicted by most economists, is very much a possibility. In an election year Gov. O'Malley may be tempted to ladle the gravy in a few choice places, but until things are clearer the money should stay in the rainy-day fund.

Posted by Jay Hancock at 8:54 AM | Permalink | Comments (0)
Categories: Taxes
        

The centerpiece of former Gov. Robert L. Ehrlich's economic platform is his attempt to regain the governorship is cutting Maryland's sale tax from 6 percent to 5 percent. Gov. Martin O'Malley, you'll recall, raised it from 5 percent to 6 percent. But a study by the Tax Foundation shows that, when ranked nationally, and when local sales taxes are taken into account, Maryland's sales tax doesn't look all that high.

In "low-tax" Tennessee, for example, the weighted average local sales tax brings the statewide rate up past 9 percent -- highest in the country. By this measure Texas, New York, Arkansas, Arizona and many other states -- a total of 32 -- all have higher sales taxes than Maryland. To repeat, the Tax Foundation didn't cherry-pick the highest local rates from each state. It produced an average rate for a whole state, weighted according to how much retail activity took place in a locality.

Here's Sunday's column on why Ehrlich should favor cutting Maryland's income tax instead.

Posted by Jay Hancock at 8:22 AM | Permalink | Comments (17)
Categories: Taxes
        

Tuesday's column was about the stupidity of sales-tax holidays, which distort fiscal policy and consumer behavior and whose only fans are politicians. The column took shots at O'Malley and Ehrlich.

There's a lot of this going around. Eighteen states have approved sales-tax respites this year. If the Massachusetts Senate ratifies a tax holiday approved two weeks ago by the House, that'll make 19 — an all-time high, according to a study published Monday by the Tax Foundation.

And — surprise! — two-thirds of those states hold gubernatorial elections this year.

I see from my Inbox that Comptroller Peter Franchot is also associating himself with the 1-week sales-tax break that Marylanders will get starting Aug. 8. The names of Washington County Commissioner John Barr and Sen. Don Munson also find themselves in the same press release with Aeropostale, Banana Republic, BCBG MAXAZRIA, J.Crew, Nike, Polo Ralph Lauren & Skechers. Just in case you throught there was anything except marketing going on here.

FOR IMMEDIATE RELEASE

CONTACT: Sue Helondovitch Angie Riford
Oxford Communications Prime Outlets-Hagerstown
609.397.4242, ext. 176 301.790.2031
shelondovitch@oxfordcommunications.com ariford@primeretail.com

PRIME OUTLETS – HAGERSTOWN CELEBRATES RETURN OF TAX-FREE SHOPPING

Comptroller Franchot, Local Officials to Visit Shopping Destination for Official Announcement Thursday, Aug. 5

HAGERSTOWN, MD – July 28, 2010 – As tax-free shopping returns to Maryland following a four-year hiatus Sun., August 8 through Sat., August 14, the more than 100 merchants at Prime Outlets – Hagerstown, the outlet shopping destination located near the Washington, D.C. and Baltimore metro markets, are preparing for thousands of back-to-school, summer clearance and fall fashion shoppers looking to reap the benefits of additional savings opportunities from leading designer and name-brands.

Continue reading "Franchot hops on tax-holiday bandwagon" »

Posted by Jay Hancock at 11:07 AM | Permalink | Comments (0)
Categories: Taxes
        

Sunday's column on Baltimore's living wage proposal for big retailers was an attempt to look at the question practically, not ideologically. How to vote if you're a council member with the city's best interests at heart rather than following some ideological playbook or currying favor with voters? The column concluded that what's most important is Baltimore's tax base, and that the risks posed by a living wage bill to the city's tax base far outweigh any benefits to be gained from higher pay for a few thousand people.

To judge from comments on the column, however, this was not a message that got through. There was a lot of, "Oohh, the Waltons who hold Walmart stock are really rich so they should pay workers more." Whether or not you believe this is true, it has nothing to do with whether a struggling, medium-size city should try to mandate a wage increase for big stores when none of the bordering counties is likely to do so.

Posted by Jay Hancock at 10:51 AM | Permalink | Comments (1)
Categories: Taxes
        

When you take federal deductions for paying college tuition, you have to add it back in on your Maryland return. I did not know this. The state just billed me for $369 in back tax and interest for failing to add $4,000 in federal tuition deduction back into my 2008 Maryland income. (See instruction 12, code O in Form 502 instructions.) Should have used TurboTax.

Posted by Jay Hancock at 9:06 PM | Permalink | Comments (4)
Categories: Taxes
        

Baltimore's budget demonstrates one of democracy's well-known flaws. The squealing wheel gets the oil; the silent majority gets the shaft. Baltimore's proposed bottle tax got cut in half because a coalition of retailers and beverage distributors mustered extraordinary resources to oppose it. Newspaper ads were bought. Superlobbyists were hired. Doom was predicted.

Public choice theory teaches that democracy is often tilted to respond to the interests of the few at the expense of the many. The bottle tax would have benefited Baltimore as a whole, but in a diffuse way. Its effect on any one household (in terms of saving police jobs etc.) would have been hard to measure. So for the majority of Baltimore residents, there wasn't much incentive to strongly support the bottle tax.

However there WAS incentive for beverage sellers to oppose it. It was aimed directly at them. The threat they perceived in the bottle tax was much bigger than any possible benefit to them from balancing the city budget. So they fought hard and partly won.

Meanwhile the city passed a broad, personal-income tax increase with hardly a hint of opposition. Where was the lobbying campaign against that? Where were the newspaper ads against raising taxes on already-overtaxed Baltimoreans? Where were the counterparts to lobbyist Bruce Bereano, hovering around council members to warn them of disaster? Of course there weren't any. The body politic doesn't have lobbyists. It has elected representatives. But too often they're too busy listening to the special interests.

Posted by Jay Hancock at 8:44 AM | Permalink | Comments (16)
Categories: Taxes
        

Yesterday's column was about the Baltimore fire & police pensions and how they are a harbinger of what Maryland's governor, whoever he is, will be dealing with next year. I disliked the headline that editors wrote for the print edition: "Too bad about those pension promises." It seemed to mock those hoping that today's state and city pension terms will last. Mocking is not my intention. My point was that everybody is dealing with diminished resources and lowered expectations in today's economy, and that members of all defined-benefit pension plans, government's included, will have to face up to that.

But don't expect public pension plans to be wiped out, by any means. Even after inevitable reforms, most government employees will have the kind of retirement benefits that private-sector employees can only wish for. It's just that contribution rates will rise, retirement ages will be pushed back, cost-of-living adjustments will be lowered and so forth.

A good analogy is Social Security, which is headed toward its second big overhaul in four decades. Most workers pay into Social Security, and most workers will have to adjust to the idea that Social Security's terms are going to change. Look for the Social Security retirement age to be pushed back and perhaps for benefits to be scaled back for high-income folks. Many Social Security members realize that present terms can't be maintained without terrible fiscal consequences or intolerable tax burdens on younger generations. But barring some barely imaginable disaster Social Security will be here and paying benefits for a long, long time.

Posted by Jay Hancock at 6:06 AM | Permalink | Comments (4)
Categories: Taxes
        

The mortgage disaster was the fraudfest of all fraudfests. "Liar loans," in which borrowers lied about their income and assets, became common. Mortgage originators played along. So why would the mortgage-disaster bailout be any different? A Treasury Department inspector general reports that 4,608 people have claimed the homebuyer tax credit even though their home is a government prison. Some of them could have been filing jointly with spouses eligible for the credit, but more than 700 not only didn't file jointly but were serving life sentences!

Of those returns from single-filing lifers, 174 were filed by paid, professional tax preparers. So again the middlemen are aiding and abetting.

Some other choice tidbits from the IG's report, which you can read in whole here.

-- Florida prisoners seem to have been especially diligent about defrauding the government. More than half the inmates who got the credit and are serving life sentences were in Florida.

-- Many of the fraudulent inmate returns slipped past screens set up by the IRS that were supposed to catch them. IRS employees also failed to follow up on other signs of fraud in numerous returns, the IG said.

-- More than 80 IRS employees claimed the credit even though they don't seem to have bought a house in the required time period.

-- Either there's an unreported overcrowding problem in U.S. housing, or lots of people fraudulently claimed the same addresses for their "new homes." There were five addresses claimed by 256 people.

-- Some people claimed the homebuyer tax credit for houses bought as long ago as 2000 and 2001.

-- The IRS agrees that the money given to prisoners should be recovered! Inspector general: "The Director, Reporting Compliance, Wage and Investment Division, should ensure that steps are taken to recover fraudulent Homebuyer Credits refunded to prisoners." The IRS: "IRS management agreed with this recommendation."

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (3)
Categories: Taxes
        

The virtual outlawing of cigarettes proceeds apace. Taxes are now so high in New York that the economically rational decision is overwhelmingly to buy smuggled smokes. Today's NYT reports that on July 1 the average price per pack in New York will be $9.20. In New York City it'll be $11.

And rest assured that there will be plenty of cheap, smuggled cigarettes. Smugglers bring vanloads of smokes from southern states with low taxes and resell them in Maryland and points farther north. Law enforcement tries to crack down, but the incentive to make "arbitrage" profits between South Carolina and New York is now huge. Decade by decade, we're seeing a convergence in the legal treatment of tobacco and marijuana. As marijuana becomes decriminalized, cigarettes are being slowly criminalized.

Not necessarily a terrible thing. Studies show that high cigarette taxes reduce use among the young. But smuggling creates another challenge for law enforcement.

Posted by Jay Hancock at 9:29 AM | Permalink | Comments (28)
Categories: Taxes
        

The tension over Baltimore's bottle tax, passed last night to save city services, shows how politics can veer from substance into petty drama. We're talking about a nearly invisible few cents per drink. But in City Council it became a contest not about revenue but about egos, "winning," "losing" and pride.

Retail interests said the 2-cent tax that passed was better than the 4 cents originally proposed. It's a difference of two pennies. Customers aren't going to notice. They wouldn't have noticed 4 cents. Retail lobbyists can paint the 2-cent deal as a partial "victory." So can Mayor Stephanie Rawlings-Blake, who backed the 4-cent tax.

Two miserable pennies. But it created the perception of compromise, which got the deal done. Surely heavy pressure was applied to Helen Holton, who voted against the 4-cent deal last week but reintroduced the bottle tax last night and voted for the 2-cent version. But give her credit for being willing to change her mind. Her ego looks like it took the biggest hit.

UPDATE FRIDAY: Pulled from comments, a good question raised by reader Martin:

Why is it the when the city talks about cutting back, the police and fire fighters are always top of the list? Because they want to scare the city residents into paying more taxes. The city government is like any old, overstuffed bureaucracy. Full of fat, middle management, and administrators.

Posted by Jay Hancock at 8:53 AM | Permalink | Comments (23)
Categories: Taxes
        

From Barry Ritholtz:

I am going to hazard the surprising forecast that Social Security will never run out of money. If that sounds like some sort of economic blasphemy, just take a look across the pond for a glimpse of SS’s future. President Sarkozy of France (France!) is showing not only Greece how to get its welfare state in order, but he is also demonstrating to us Americans what the future of entitlement programs look like.

Details here.

Posted by Jay Hancock at 8:41 AM | Permalink | Comments (2)
Categories: Taxes
        

Helen Holton, who proposed slapping an 8 percent energy tax on Baltimore's few remaining factories, says approval of the tax yesterday was delayed by "a technical issue." Carl Stokes says it's "almost off the table."

Let's hope so. Manufacturing plants are Baltimore's most-endangered business species, and they're much more important than their dwindling numbers might suggest. Factories pay much better than the other jobs Baltimore has to offer folks without college degrees. Heck, Baltimore factory workers probably make more than a lot of folks with college degrees.

Among the struggling Baltimore manufacturers is National Gypsum, the drywall maker that has been hurt by the housing collapse. Plant manager Ricky Smith told The Sun that he spends $16 million a year on energy, so the tax would be $128,000 for that facility alone. The Domino Sugars plant would have to pay more than $1 million.

UPDATE: Pulled from comments, energy lawyer Mike Powell:

Actually, there is a missing zero in that calculation. 8% of National Gypsum's bill is $1.28 million a year not 128,000.

When you actually do the calculations, the actual cost is likely to be more than 8%. That is because the rate is based upon revenues in 2005 (when there were far more industrial customers) and adjusted by the consumer price index since 2005 (which has gone up more than wholesale energy costs)

Posted by Jay Hancock at 8:55 AM | Permalink | Comments (3)
Categories: Taxes
        

Because of Washington shenanigans and the wacky tax code, there is a brief window in time with no federal inheritance tax. If you die this year, no matter how rich you are, the taxman cannot take anything from the estate before your heirs collect. NYT takes note of perhaps the richest person so far to take advantage of this loophole, a Texas energy tycoon named Dan Duncan.

Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.

Had his life ended three months earlier, Mr. Duncan’s riches — Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world — would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher — 55 percent.

Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.

Posted by Jay Hancock at 9:14 AM | Permalink | Comments (8)
Categories: Taxes
        

I understand why Republican gubernatorial candidate Bob Ehrlich is promising to cut Maryland's sales tax and corporate income tax. It's good politics. Gov. O'Malley's increase in the sales tax from 5 percent to 6 percent affects every Marylander, although I doubt many notice it until Ehrlich reminds them. Cutting the corporate income tax is a symbolic sop to business. Corporate income taxes don't raise much money. Cutting the rate wouldn't cost the state treasury very much, and whoever is governor a year from now will have big budget headaches.

But if Ehrlich really wanted to help small business, as he says he does, he would campaign to cut the individual income tax. Even after Maryland's "millionaire tax" surcharge expires this year, the state will have one of the highest personal income taxes in the country when you count the state rate combined with the local "piggyback" tax.

Why does the personal rate matter to business? Most small businesses are partnerships, S corporations or limited liability companies that pay tax at the personal rate of their owners. The tax is owed whether or not any money is taken out in the form of dividends. Numerous small-biz owners retain earnings inside the company to invest in growth, and yet they have to pay high taxes on the earnings out of personal funds.

The individual income tax is a much bigger challenge for Maryland's ability to attract and keep small businesses than the sales tax. The sales tax is basically irrelevant to small business.

Posted by Jay Hancock at 9:13 AM | Permalink | Comments (8)
Categories: Taxes
        

There seems to be a growing awareness on both sides of the political range that to let the United States' fiscal health go the way of Greece would not be a great thing, and that we're not going to cut our way to a balanced budget because Americans love their Medicare and other entitlements way too much. So that means tax increases. (No, nobody is talking about doing this while the economy is still in the dumps.) The most-talked about tax is a European-style value added tax, which would basically be a federal sales tax levied all along the production chain. Among its attractions, a VAT is easy to administer and difficult to cheat against.

Here's former Fed chairman Paul Volcker, a Democrat, according to Reuters:

Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.

Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. "If at the end of the day we need to raise taxes, we should raise taxes," he said.

And here's Greg Mankiw, who was chairman of President Bush II's Council of Economic Advisors, writing in the NYT:

The bottom line, from both political perspectives, is that a VAT is neither blessed nor evil. It is a tool. We can use it to advance a larger government, a more efficient tax system or some combination of the two.

That will be the key issue in the coming debate.

Posted by Jay Hancock at 8:41 AM | Permalink | Comments (6)
Categories: Taxes
        

Agreeing to an increase in the Downtown Partnership surcharge is the least large commercial property-owners can do, considering all the tax breaks that have been given out for locating there. On Sunday I wrote about the need to get more revenue from one undertaxed set of businesses in the city: universities and hospitals that fall under the nonprofit section of the tax code.

Developers getting millions in downtown tax breaks are another group. The downtown business district is riddled with hotels and office buildings that aren't paying their share of property taxes to the city. Developers and the Baltimore Development Corp. argue that the projects wouldn't have been "economically viable" without the welfare. In any case, bumping up the partnership surcharge is one way to get the projects to contribute a little more to the environment that supports them.

The increased surcharge will hit every downtown commercial property, not just the ones getting tax breaks. I propose a special "Paterakis tax" to allow the partnership to get extra money from the welfare queens.

UPDATE: Harbor East isn't even in the Downtown Partnership zone, so the Paterakis projects over there aren't even paying partnership surcharges. Harbor East certainly benefits from all the upgrades to the old city business center, and it ought to be folded into the partnership zone.

PS. Harbor East is in the Waterfront Mangement District, where the surcharge is 17 cents per $100 of value. That's more than the Downtown Partnership assessment is now but less than what the DTP tax would rise to. 

Posted by Jay Hancock at 8:28 AM | Permalink | Comments (7)
Categories: Taxes
        

"For Cash-Strapped States, Sin Is Sure Lucrative," is the headline in today's NYT. According to the Times, seven states enacted or raised alcohol taxes.

Maryland, meanwhile, hasn't raised the tax on wine and beer since 1972 and hasn't raised the spirits tax since the 1950s. I'm not talking about the percentage of sales, which would rise with inflation even if the rate stayed the same. I'm talking about the TAX. Marylanders pay the same 40 cents per gallon of wine that they did in 1973.

The Maryland alcohol lobby is a thing of might and awesomeness. Attempts in this year's General Assembly to bring Maryland's alcohol taxes into the 1990s failed miserably.

Posted by Jay Hancock at 2:07 PM | Permalink | Comments (2)
Categories: Taxes
        

Whatever else Mayor Stephanie Rawlings-Blake does to balance Baltimore's budget, she's doing the right thing by not raising the city's residential property tax. Baltimore needs residents. Its high property tax -- 2.268 percent, according to the state -- is a deterrent to residents. That's twice Baltimore County's rate and more than twice Howard County's and Harford County's.

Hospitals and colleges will squawk about the proposed "bed tax, but they need to pay more to support the city. They're exempt from property taxes. One thing is for sure: Baltimore needs to mimic Baltimore County in fixing its pension-expense problem for city employees. I wrote about the county's assertive approach to addressing pension costs in Sunday's paper. Pensions are a much, much more serious problem for the city. Over the longer term, Baltimore needs to figure out how to cut its residential property-tax rate. Cutting pension costs is the first step to doing that.

Posted by Jay Hancock at 8:57 AM | Permalink | Comments (11)
Categories: Taxes
        

Interesting/disturbing stuff from TRAC:

Despite a growing federal deficit, IRS audit efforts aimed at the nation's largest corporations have precipitously declined in the last few years and now are at an all time low, according to the analysis of agency data by the Transactional Records Access Clearinghouse (TRAC).

Among corporations reporting assets of $250 million or more, the IRS since FY 2005 has cut back by a third (33 percent) the hours it spends examining their books. IRS has also sharply reduced the number of large corporate returns it examines — these audits have fallen by 22 percent since 2005 (see Figure 1 and Table 1).

This has occurred even though IRS auditors uncover the largest dollar amounts of tax under-reporting in the books of these large corporations (see Table 2) and Congress has actually provided IRS with more revenue agents trained to handle complex returns such as these (see Table 3).

Posted by Jay Hancock at 11:48 AM | Permalink | Comments (0)
Categories: Taxes
        

I wouldn't believe it if I hadn't read the story and editorial in today's Baltimore Sun. The Maryland Chamber of Commerce and other business groups have agreed to back Gov. O'Malley's proposed repair of the state's depleted unemployment insurance fund. And get this: They've agreed to pay higher taxes in the short term in order to help the fund gain solvency.

Where are the protests against this tyranny? What happened to the conservative wisdom that the only good tax is a lower tax -- now!? Why have Maryland businesses agreed to feed the beast of big government? At this rate the unemployment fund will turn into a success -- providing temporary relief to jobless workers while keeping Maryland's books in the black. Republicans and Democrats came together in Annapolis to craft a sensible solution. The horror!

Truth be told, this is the kind of compromise that will be required in Washington, although Capitol Hill is light years away from it. Paying for the entitlements that Americans love -- Medicare and Social Security -- will require some kind of tax increase beyond the ones that will happen when the Bush tax cuts expire. (After the economy recovers!) Sorry, but that's the way the math works. Drastically cut Medicare or raise taxes.

A few weeks ago I portrayed the opposition to O'Malley's unemployment-tax fix as connected to tea-party animus against Washington and bailouts. (O'Malley's plan and the amended scheme accepted by the chamber includes $127 million in stimulus funds to replenish the fund.) I still think that's true, but the chamber should get credit for the compromise. Just don't let the word get out that you supported a tax increase, chamber. What would Mitch McConnell say?

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (3)
Categories: Taxes
        

Conservatives are starting to realize the obvious: The United States will never reduce government spending enough to balance the budget. Given this, financial catastrophe is inevitable if we do nothing. Given this, some kind of tax increases are also inevitable -- not now, but when the economy has sufficiently recovered to bear the burden.

George Mason University's Tyler Cowen makes the argument for a value added tax -- basically a national sales tax. He cautions:" I am by no means convinced this argument is correct." But his argument is a darn good one. And in Sunday's New York Times Greg Mankiw, head of the Council of Economic Advisers when George W. Bush was president, says: "Ms. Pelosi’s suggestion of a VAT may be the best of a bunch of bad alternatives."

Cowen's argument includes these points:

-- The United States is on an unsustainable fiscal path.
-- I would prefer spending cuts, but voters seem too irrational to be willing to cut spending.
-- We could, for now, wait and postpone fiscal reform. That means encountering a sudden collapse some number of years from now.
-- We'll get a better deal, and make wiser decisions, if we do it today rather than in a panic. Plus another financial crisis would prove deadly to both the budget and to the quality of economic thinking.

Posted by Jay Hancock at 8:35 AM | Permalink | Comments (6)
Categories: Taxes
        

I was asking city and state officials about budget effects of the snowstorm. Naturally costs are huge and unbudgeted. But there's also a modest hit to tax collections as a result of closed stores, employees not working etc.

And here's one you didn't think of: Sparse traffic means fewer fines for traffic violations. In an email, Baltimore budget chief Andrew Kleine says, "Parking is one obvious place where we're losing money, along with transportation-related fines (red lights, speed cameras, etc.)."

Posted by Jay Hancock at 8:53 AM | Permalink | Comments (3)
Categories: Taxes
        

Gov. Martin O'Malley says the state has spent $40 million on snow removal so far. The tab will surely go much higher, and that has implications for Maryland's difficult budget situation if the Feds don't come through with aid. But the snow has another budget effect. It'll depress tax revenue. Closed stores mean that sales tax doesn't get collected. Furloughed workers pay less income tax. Frozen commerce depresses corporate income and corporate income taxes.

David Roose, director of the Bureau of Revenue Estimates, figures it could be perhaps $10 million.

"We have in the past seen big hits on the sales tax from snowstorms, and we think that's what happened in December--January collections (December sales) were well below expectations after that storm right before Christmas," Roose says via email. "This one will presumably have a big impact also, though this is one of the smallest months for sales tax collections."

Snowstorms also tend to boost Web sales at the expense of local sales. That's another hit to taxes because Amazon and some other Web companies don't collect state sales taxes.

Posted by Jay Hancock at 9:04 AM | Permalink | Comments (5)
Categories: Taxes
        

As Jamie Smith Hopkins reports in today's paper, Anne Arundel backed down on its attempt to levy recordation taxes based on the amount of debt forgiven in a short sale rather than the actual sales price. (A short sale is where the home sells for less than what's owed on the mortgage. The county was trying to ding people by taxing the mortgage, not the sale.)

It's true that state law (Property tax article, §12–103) is not exactly a model of clarity. It says:

The recordation tax rates under this section are applied to each $500 or fraction of $500 of consideration payable or of the principal amount of the debt secured for an instrument of writing. The consideration includes the amount of any mortgage or deed of trust assumed by the grantee.

This seems to give the revenuers the choice of taxing either the sales price or the mortgage -- a nice Catch 22. They could tax whichever is higher. But counties tax the mortgage only when banks accept a property deed in lieu of foreclosure, Smith Hopkins writes. The key to the recordation tax is that it's associated with ownership transfer, according to the lawyers she interviewed.

In a bank takeover the debt forgiveness is part and parcel of the transfer -- and there is no other sale price. In a short sale it's separate -- a third party buys the house and the bank just happens to extinguish the debt.

UPDATE: Here's a link to the attorney general's opinion. Thanks Stuart.

Posted by Jay Hancock at 9:04 AM | Permalink | Comments (0)
Categories: Taxes
        

Today's column is about Maryland's cigarette smugging industry, which was fabulously energized by the decision to raise Maryland cigarette taxes from $1 to $2 a pack in 2008. The gap between Maryland's tax and Virginia's tax of 30 cents a pack means there is good money to be made by loading up the minivan with smokes in Virginia and reselling them here.

I didn't have room to mention Delaware, which is also making a name for itself as an illicit tobacco supplier. The folks at Michigan's Mackinac Center for Public Policy ran numbers on tax discrepancies between the states and the proximity of high-tax states to low-tax states. They fingered Delaware as a huge cigarette smuggling source along with Virginia. Delaware's cigarette tax used to be 55 cents per pack but recently went up to $1.15, according to the Tax Foundation. Even so, Delaware is close enough to states with REALLY high cig taxes such as New York that you can make some money by making the trip from New York City to Wilmington.

New York's tax is $2.75 per pack. Tiny Rhode Island's is $3.46. You think any smuggling happens in Rhode Island?

Posted by Jay Hancock at 11:05 AM | Permalink | Comments (3)
Categories: Taxes
        

Wednesday's column is about Northrop Grumman's decision to move its headquarters to the Washington region -- either Virginia, Maryland or the District. Who will win? Northrop will shake down each of the jurisdictions for tax breaks and other incentives. But it may not be corporate taxes that clinch the decision (although no one would ever admit this). You can bet that Northrop execs will look closely at their own tax liability in the different spots, and Virginia has the huge advantage.

Let's assume new Northrop boss Wes Bush will make what outgoing CEO Ronald Sugar made in cash salary and bonus, which in 2008 was $4.3 million. If he settles in Montgomery County, Maryland, thanks (in part) to the state's "millionaire tax" he'll pay what I calculate to be $396,000 in state income tax and Montgomery County piggyback income tax. (This is highly simplified. I'm not counting deductions and in any given year his taxable income might be even more with option exercises, capital gains etc.)

UPDATE: O'Malley spokesman Rick Abbruzzese notes that the millionaire tax is due to expire at the end of this year. My bad: I thought it was 2011. In any case, thanks to the piggyback tax Northrop Grumman execs would still pay a lot more personal income tax in Virginia than in Maryland even if the millionaire tax expires.

But if they put Northrop's new headquarters just across the Potomac and Bush lives there, he would pay only $247,000 in Virginia income tax, saving $149,000. (Again, I'm simplifying. Since he would get a bigger deduction on his federal return by paying Maryland taxes, his federal taxes might be lower if he lived in Maryland. But overall he'd still be way ahead in Virginia, especially once he started paying taxes on capital gains.)

Where would you put your company? More in Wednesday's paper.

Posted by Jay Hancock at 6:24 AM | Permalink | Comments (9)
Categories: Taxes
        

As Larry Carson points out in today's story, the plunge in Maryland home values won't mean a similar decline in real estate taxes. Tax assessments sent out this week showed a 20 percent decline, in average, in home values. But because the tax system gradually phases in value increases, many houses were never taxed at the inflated levels they reached three years ago.

My Howard County house is a good example. According to Zillow.com, it's worth 19 percent less than it was in 2006. But last year the assessed value of the house was only $7,000 more than what Zillow says it's worth now. So maybe my taxes will go down a little, but not 19 percent.

There is a revenue impact for Howard County and other local governments. But it takes the form of revenue foregone in future years, not big, immediate revenue decreases. A few years ago counties were counting on property tax revenue heading up eventually to catch up with what they thought were permanently high values.

UPDATE: Couple good points. Jamie Smith Hopkins, who blogs here on the new assessments, notes that people who bought homes in recent years could see a tax decrease. The homestead credit that keeps tax increases from fully keeping up with home values applies only if the house didn't change ownership in the previous tax year. In other words, the credits are highest for people who have been in houses a long time. If you bought recently you may well see a tax decrease this year.

And, as commenter Garth points out, the homestead credit does not apply to rental properties. So landlords should also see decent tax decreases.

Posted by Jay Hancock at 8:06 AM | Permalink | Comments (8)
Categories: Taxes
        

The Indoor Tanning Association has gotten on the ball, urging tanning customers and tanning parlor owners to contact Congress. The canned letter they want people to send says that "the tax will ultimately be paid by the consumer and working Americans, working women and college students." Yeah, for an unnecessary and even harmful product.

Predictably, the tanning industry is portraying the tax as an attack on small business and women. "The tax unfairly targets female consumers, who make up more than two-thirds of tanning clients," says a trade organization called Smart Tan. Susan B. Anthony and Lucretia Mott must be tumbling in their graves over the Senate's outrageous attack on their gender. Elizabeth Cady Stanton would never think of missing her weekly session of basking under the UV lights and frying her squamous cell DNA.

Smart Tan also issues a wholly suspect "estimate" on potential job loss:

Smart Tan estimates as many as 1000 U.S. salons could close as a result of the tax in 2010 resulting in more than 9000 lost jobs nationwide.

Posted by Jay Hancock at 11:02 AM | Permalink | Comments (9)
Categories: Taxes
        

Of course the number of Marylanders earning more than $1 million plunged last year. There was a financial crisis. Proportionally, as they affect income and net worth, financial crises hurt the wealthy more than others. The plunge in the fortunes of the very wealthy after the Depression caused the mid-20th century decline in income inequality as much as anything else.

But that doesn't mean taxes aren't persuading rich folks to bug out of Maryland. The number of million-dollar-plus tax returns in the state fell by 30 percent last year, reports Laura Smitherman. More to the point of tax flight, more than 500 filers with million-dollar incomes in 2007 filed no tax return for 2008, meaning they moved, died or just didn't file. Surely many of them moved.

But probably not because of the special, 6.25 percent "millionaire's" bracket on the income tax. That expires next year. Rich people are exiting Maryland, their lawyers will tell you, because of Maryland's estate tax. Maryland's estate tax applies to estates of over $1 million and can take hundreds of thousands or millions from a dead person's heirs. The federal estate tax kicks in only on estates of more than $3.5 million. And many states, including Virginia and Florida, have no estate tax at all.

For the wealthy, Maryland's estate tax is a much more powerful repellent than its income tax. I guess Republicans focus on criticizing the income tax surcharge because it was approved by Gov. O'Malley. The estate tax has been around for a while. But I bet the income tax isn't the main factor.

Posted by Jay Hancock at 8:31 AM | Permalink | Comments (5)
Categories: Taxes
        

There are Americans who could use a one-time, $250 bonus appropriated by Congress and approved by the president. But it's very difficult to argue that Social Security recipients should be at the top of the list. Seniors didn't get their cost-of-living increase for Social Security this year because the inflation rate was negative. Now Washington is talking about giving them an increase anyway. Why? Hard to tell. But, heck, we're handing out billions to everybody else, anyway, so why not pander to grandma, too?

The bonus would cost $13 billion. President Obama has not said how it would be paid for. In any event it's a bad idea. This is the wealthiest generation of senior citizens in history. In addition to providing Social Security, the government covers their medical costs through Medicare. Last year's cost-of-living increase for Social Security was 5.8 percent. How many workers do you know who got 5.8 percent raises last year? Social Security checks automatically keep up with inflation. Many, many workers are falling behind inflation.The senior-citizen poverty rate in the United States has fallen to about 10 percent from more than 30 percent in the 1950s.

Washington needs to stop handing out money like candy. But if it's going to write checks, how about directing them to the 1 in 10 impoverished senior citizens instead of to every single Social Security beneficiary? Or to children in poverty (34 percent of all kids 18 and under in 2007, according to the Census Bureau)? Or to workers displaced by foreign trade?

In a few years, inflation will be back and so will the COLA increases for Social Security. But I doubt seniors or anybody else will think that's a good thing, either.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (42)
Categories: Taxes
        

Congress and the White House are thinking about passing a tax credit for companies that hire new workers, the NYT reports. We keep hearing talk of Stimulus II. This is what it's likely to look like, if it happens. The idea is that, by lowering the cost of hiring, companies will do more of it. Maryland has had a job-creation tax credit since right after the last bad recession, in the 1990s.

The danger with the federal proposal is that it could supress hiring until it gets passed. Companies that are about to staff up for the economic recovery might wait until they can claim the credit. Reports the NYT's Catherine Rampell:

The biggest fear among some, though, is that the proposal might unintentionally reduce job opportunities if it sits in Washington too long without passing.

“Particularly for big employers, if they think a job creation tax credit is in the offing, it could certainly be an incentive to delay hiring,” said Lee E. Ohanian, an economics professor at the University of California, Los Angeles. “That means it could have the perverse effect of actually prolonging the recession.”

Posted by Jay Hancock at 12:43 PM | Permalink | Comments (1)
Categories: Taxes
        

Today's column is on how Gov. O'Malley and the rest of Annapolis have coped with the fiscal crisis. The verdict is: Not bad. I might have been harder on O'Malley for not doing more to pare the government work force during the worst recession in 70 years, except for this statistic: Maryland ranks very well for the number of state and local government employees per capita.

I suspect there is more to the story. Maryland's taxes are high compared with those of other states, which does not imply efficiency. But if we're not spending the money on state and local government workers, where is it going? Two guesses: Government services performed by private contractors. Or entitlements. But I do not know. Anybody got an idea?

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (2)
Categories: Taxes
        

Maryland has started another tax amnesty program, this one from now until Oct. 30. Tax scofflaws -- who owe Maryland as much as $500 million, according to the comptroller -- can pay their arrears without penalty.

This is Maryland's third tax amnesty since the Federation of Tax Administrators began keeping track in 1982. We had one in 1987 and another in 2001. At some point these things are going to stop paying off. Maybe they already are. The 1987 holiday raised $35 million for Maryland. The 2001 one netted $39 million. This time officials are talking about $5 million or $10 million.

It's a great deal for the tardy taxpayer. Not only are penalties waived. This time so is half the interest, which in Maryland is practically at Tony Soprano levels -- 13 percent!

Taxpayers are rational, and they can see that amnesties are becoming more than the one-time deals that they're advertised as. In most states amnesties crop up when recessions hit and comptrollers are hard up for dough. If you owe back taxes and you see the fiscal situation deteriorating, governors and legislatures are sending you a message: Just wait, folks, because we're so desperate that soon we'll change the rules in your favor.

States offering tax amnesty this year include Alabama, Arizona, Connecticut, Massachusetts, New Jersey, and Virginia, according to The Tax Adviser. At least some policymakers are starting to worry that enough is enough. A New Mexico fiscal analyst quoted by The Tax Adverser recently warned: "frequent amnesty periods may indirectly communicate a message to taxpayers that they do not need to comply with the Tax Administration Act because, potentially, another amnesty period may be approved."

These days "potentially" is becoming "inevitably."

Posted by Jay Hancock at 6:12 AM | Permalink | Comments (2)
Categories: Taxes
        

Laura Smitherman reports that lawmakers are talking again about an "Internet sales tax" in Maryland that would apply to online merchants not now collecting the 6 percent sales tax that state-based stores must remit.

An Internet sales tax is another proposal that has drawn support. Backers say that such a tax would ensure fairness. Under the current system, some online purchases are subject to state sales tax and others are not. An Internet sales tax could generate an estimated $7.8 million a year, according to fiscal analysts.

Nice try, but the Supreme Court has ruled that under current law states cannot tax Internet or catalog sales when the merchants have no physical presence in the particular state. The case is is Quill Corp. v. North Dakota, 1992. Amazon and other big Internet merchants own zero property in Maryland. (Internet sellers such as Land's End or L.L. Bean, which do have Maryland stores, must collect Maryland sales tax on their Web sales.)

New York, California and other states are trying to get around this by treating independent Amazon affiliates in their states as an Amazon presence, and requiring a tax. (When you buy less-than-mainstream merchandise on Amazon -- say, cookware -- the order often comes from an outside vendor piggybacking on Amazon's software.) Amazon has challenged this in court but is also severing ties with affiliates in California and other states that have made this move. Here is good background from blog.fed.tax.net.

A small state like Maryland probably has few affiliates of Amazon or other Internet sellers, so that route is probably blocked. And an outright attempt to flout the Supreme Court precedent would lead to challenges, bad press and not much revenue. Maryland needs to wait until Congress passes a law requiring Internet merchants to collect and remit sales for customers in every state.

Posted by Jay Hancock at 10:42 AM | Permalink | Comments (3)
Categories: Taxes
        

Bruce Bartlett says it's unrealistic and risky to rule out tax increases. From Ezra Klein's Q&A:

An Interview with Bruce Bartlett

Bruce Bartlett's conservative credentials are impeccable: He's worked for Ronald Reagan and George H.W. Bush, Jude Wanniski and Gary Bauer, Ron Paul and Jack Kemp. But he's also an economic realist: Government spending is growing, he says, and taxes are going to have to grow with it. The question for his party is whether it wants to get to work crafting those tax increases in a responsible way, or whether it wants to let Democrats levy inefficient hits on the rich and strange changes to the tax code. The health-care debate is a perfect example: A VAT could pay for this efficiently. But without Republican support, a surtax on the rich is likely to pay for this inefficiently. We spoke yesterday.

EK: Start at the beginning. Why do we even need taxes? Why pay for anything?

BB: We have a stream of revenue we'll continue to get in the future from the policies in place. But spending is projected to rise much more rapidly. So the question becomes what is the politically and economically tolerable level of the deficit? The Republican position seems to be, as Dick Cheney once said, that "deficits don't matter."

I don't know when we reach that threshold. But I think we were getting close even before the current problems. And federal spending is supposed to rise by about 50 percent over the next 25 years or so, and that was before any of the recent events. I think long before we'd reach the year 2030 we'd have a deficit large enough to create massive economic and political problems. Since the deficit has gotten so much larger so much faster, we're starting to see those problems on the horizon: Weakness of the dollar, increased efforts of foreign countries to diversify, unwillingness of other countries to hold the dollar. Eventually, we'll have a lot more trouble selling our bonds because our foreigners won't want them any longer.

Tyler Cowen says Bartlett is "courageous."

Posted by Jay Hancock at 2:05 PM | Permalink | Comments (4)
Categories: Taxes
        

The House plan to finance national health care would tax income of more than $1 million annually at an additional 5.4 percent. The Tax Foundation calculates that would bring the top income-tax rate -- combined local, state and federal levies -- to more than 50 percent in 39 states. In Maryland the top rate would be 55.61 percent, the 7th highest in the nation, according to the foundation. Oregon would be No. 1, at 57.54 percent.

Actually, in some places Marylanders would pay more. The Tax Foundation used the average local tax rate for Maryland, which is 2.98 percent. But taxpayers in many counties pay more than 3 percent. In Howard and Montgomery counties it's 3.2 percent. That gets you to 57.35 percent, just ahead of Hawaii for spot No. 2.

(Math for Maryland: Local tax: 3.2%; top state rate: 6.25%; health care surtax: 5.4%; top federal rate: 39.6%; Medicare tax: 2.9%)

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (8)
Categories: Taxes
        

The Sun's editorial page notes that Delaware, long reputed tax haven, is cranking up taxes to fill an enormous budget gap. Delaware Gov. Jack Markell, it reports, has:

increased the state's gross receipts tax to about 2.1 percent and the income tax on top earners to 6.95 percent. (And when Delaware says "top earners," it means anybody making more than $60,000 a year.) Taxes on cigarettes, alcohol and slot machine proceeds are going up, too. The state is increasing corporate franchise taxes and the public utility tax and is resurrecting the estate tax.

All that still probably won't bring our neighbors to quite the level of Maryland's combined state and local taxation. The Washington-based Tax Foundation ranked Maryland fourth in that measure in 2008, while Delaware came in 24th at 9.5 percent. This new increase would put Delaware in the 10 percent range, still lower than Maryland's 10.8 percent. That difference amounts to about $1,187 less in taxes per person in Delaware. Then again, Marylanders make $7,820 more per capita than their counterparts in the First State, so moving still might not be such a great idea.

I think Delaware may still look pretty good next to Maryland the next time the Tax Foundation does its study. Delaware's gross receipts tax -- a stealth sales tax -- is still far lower than Maryland's 6 percent sales tax. Unlike Maryland, Delaware has no "piggyback" income tax for localities. So even a top income-tax bracket in Delaware of 6.95 percent is far less than what most Marylanders pay even in lower brackets for the combined state and local income tax. That's the first thing taxpayers see.

(Note that the Tax Foundation percentages are not tax brackets. Rather they represent all state and local taxes -- property, sales, income etc. -- paid by people in that state as a percentage of personal income.)

Posted by Jay Hancock at 10:17 AM | Permalink | Comments (1)
Categories: Taxes
        

Tax authorities are really pushing electronic filing these days. Now that the IRS and comptroller's office are well set to receive electronic returns, it saves tons of money. They're getting out the message in different ways. I still file on paper. The IRS found a bogus reason to delay my refund -- on my itemized deductions I had forgotten to distinguish noncash charitable donations from cash donations. In the accompanying letter the agency said -- I'm paraphrasing -- if you had filed electronically, this would have happened to you.

In Maryland, here's a funny video from Comptroller Peter Franchot pushing e-filing with a takeoff on the "real men of genius" beer commercials. The singer fabulously bad. I can't get the video to embed, but the link is here.

Posted by Jay Hancock at 10:19 AM | Permalink | Comments (3)
Categories: Taxes
        

Reaction to Friday's column on how Maryland's estate tax increases the motivation for millionaires to get the heck out of the state.

From a millionaire who changed residence to lower-tax Virginia. He says the estate tax AND the recent income tax surcharge on high earners are pushing the well-off to leave Maryland.

The implication from one of the people you quoted is that people in my position would never ‘move’ for a 1 or 1.5% tax difference [the millionaire bracket for the income tax]. Are you kidding me? I grew up poor. A $32,000 tax difference is VERY real, even for someone in my position. That’s how much we saved in 2008, filing in Virginia and not in Maryland (besides the millionaires tax, base rates are lower here). The bottom line is that Maryland... lost more than $150,000 in [total] annual income taxes from my family alone that would not have been lost if it were not for the O’Malley administration’s confiscatory extra tax grab.

From another millionaire:

Having , in the last two years, acted as an executor for an estate where the deceased could have lived anywhere, I can heartily ratify what Lowell Herman had to say. In fact, I am faced with a residency decision myself. Merely changing residence to Delaware would save my family the maximum.

From Del. Susan W. Krebs:

Great column on the estate tax last week. I agree with you that the estate tax is what’s driving many of these millionaires out of Maryland.

I have put in bills to fix the Maryland estate tax for the past five years, but they have never even gotten out of committee. This year, in an effort to at least get legislators on the record, I tried to amend my bill onto the inheritance tax bill for domestic partners. The amendment would have aligned the Maryland death tax with current federal law. As you can see by the roll call vote, my amendment failed.

UPDATE: And here is the other side of the coin: the rich folks who complain but don't do anything about it, as told by commenter Ruth.

Have listened to two well-off family members bemoan their lives in our state for years. They constantly insist 'they're not staying here' yet, here they are. Ta-Ta, the rest of us will soldier on in the Land of Pleasant Living. Don't let the door hit you on the way out.......

Posted by Jay Hancock at 10:12 AM | Permalink | Comments (11)
Categories: Taxes
        

Reactions to today's column on Maryland's expensive estate tax, which starts:

The millionaires are fleeing Maryland, all right. But not because of the measly tax surcharge on income over $1 million.

They're bugging out because of Maryland's estate tax, which applies to a bigger portion of a dead person's hoard than the federal estate tax or those in other states.

Readers say:

My father never made a lot of money, but he lived long enough to see his 1946 purchase of a small farm and his investments in the stock market accumulate in value to more than a million dollars. We had to pay over $30,000 in estate taxes. I think it is time that someone sheds some light on the negative impact of high taxes in the State of Maryland and Baltimore City. People who accumulate money are spendthrifts: they are conscious of the value of a dollar. While an estate of slightly more than a million dollars may not be cause to relocate: an estate of two or three million dollars would be reason to give serious consideration to relocating to another jurisdiction.

And:

I would like to add that many middle income retirees flee Maryland after retirement. They move to states that do not tax or only tax a percentage of retirement income. You pay your state income taxes for 35, 40, 50 years and Maryland is still there to squeeze you until death. This also contributes to loss in state tax revenue.

And:

I'm too busy and too young (sort of!) to worry about estate taxes, but many sixty-something retirees are doing exactly what you described. As for state income taxes, I never thought my native state of "Taxachusetts" would seem like a tax haven relative to Maryland.

And:

It's not just milionaires that want to flee the Peoples Republic of Maryland. Add me to the list of those who wish to flee. I am not even close to being a milllionair. I have spent 60 of the last 62 years of my life in Marland and I have seen it degrade into a quasi-socialist state under the "fealess" leadership of the Democrats. Democrats who without any fear or sense of responsibility pass any tax law they choose. As a retiree it is cheaper for me to sell my house at a lose and move to Texas or Florida (to name a couple) for a lower cost of living, and lower taxes. And, as a side note, if some "fool" breaks into my house I can use whatever force is necessary to defend myself and my family, without first having to worry about if the cops will arrest me.

Posted by Jay Hancock at 9:56 AM | Permalink | Comments (7)
Categories: Taxes
        

Reader James Smith asks a good question about Laura Smitherman's story last week, Maryland plan to tax millionaires backfires. It shouldn't be that hard, James says, to figure out how many previous Marylanders with a million in income moved out of the state vs. how many just saw their incomes go down.

I have a question about Laura's "Millionaire tax" story. You said that officials say there's no proof yet of millionaires packing up because of the excess tax. Wouldn't that be a very easy thing for the Comptroller's office to ascertain?

Just round up all of last year's tax returns from millionaires. There were only 3,000 right? Then look up this year's tax returns from every one of those people. It will be easy to divide the 2008 millionaires into 3 categories for 09:

Still millionaires, still paying Maryland tax No longer millionaires, still paying Maryland tax Return missing: no longer paying Maryland tax

How many people fall into that 3rd category? Subtract the number of people who died, and that (more or less) is your total of millionaires who have fled Maryland.

I'll ask comptroller Peter Franchot to get a breakdown.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (4)
Categories: Taxes
        

Cornell economist Robert Frank (The Winner-Take-All Society) has a piece in NYT saying the tea party protesters don't know how good they've got it.

... For example, as a Peace Corps volunteer in Nepal long ago, I hired a cook who had no formal education but was spectacularly intelligent and resourceful. Beyond preparing excellent meals, he could butcher a goat, thatch a roof, plaster walls, resole shoes and fix broken alarm clocks. He was also an able tinsmith and a skilled carpenter. Yet his total lifetime earnings were less than even a very lazy, untalented American might earn in a single year. Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success...

Financially successful tax protesters seem blissfully unaware of how incredibly fortunate they are. To borrow from the late Ann Richards and her description of the first President Bush, they were born on third base and thought they’d hit a triple.

Posted by Jay Hancock at 12:04 PM | Permalink | Comments (6)
Categories: Taxes
        

The Tax Foundation's Bill Ahern writes apropos of my Saturday column on tea parties, taxes etc., in which I criticized the Obama administration's proposal to reduce the charitable deduction for those in high-income brackets. Sez Bill:

Don't be so hard on Obama's suggestion to limit the charitable deduction. We do want the rich to give away their money, but we don't need to pay them for it. Let's say they actually reduced their giving by the amount of the reduced deduction (which probably wouldn't happen, but it's hard to prove either way from the history of the deduction because tax law is such a muck.) Yes, there'd be less money in the hands of charities (many of whom don't deserve their tax status), but the money they'd be missing is the amount that the government is pitching in from other taxpayers.

Some economists would say that even aside from the issue of undeserving charities (heavily endowed universities and "nonprofit" hospitals get the lion's share), we're completely misunderstanding the nature of charitable giving, and if we understood it properly, we would repeal the deduction entirely.

He directs us to a Tax Foundation's blog entry on charitable deductions, which makes these excellent points:

While subsidizing charities with tax preferences might make sense in theory, in practice the charitable deduction does of terrible job of it.

For one, its benefits are shockingly regressive. More than 75 percent of tax benefits from the charitable deduction went to the 12 percent of taxpayers with incomes over $100,000 on 2004. Taxpayers would never stand for that distribution of burdens for a direct spending program.

Second, many charities subsidized by the deduction are charitable in name only. Many look a lot like for-profit firms. Ms. magazine, Harper’s, Mother Jones and many other publications are subsidized as "charitable providers of educational materials.” The National Geographic Society sells videos and maps in direct competition with for-profit companies. The YMCA operates fee-for-service gyms. It's hard to see how these groups deserve a subsidy at taxpayer expense.

Finally, by shifting part of the cost of private giving onto others, it forces some to subsidize gifts to nonprofits with goals opposite their deeply held beliefs—for example, gifts to pro-choice groups end up being subsidized by taxpayers with pro-life views, and vice versa. How is that good policy in a free society?

Posted by Jay Hancock at 11:20 AM | Permalink | Comments (1)
Categories: Taxes
        

The headline for Saturday's column was: "Let's cut spending and raise taxes," which captured what it had to say pretty well. It began:

Thoughts on taxes, tea parties and Washington's looming fiscal disaster.

Call me conservative, but I believe parents who toil and save and accumulate a modest fortune ought to be able to pass it on to their children and grandchildren.

Vanishing savings largely caused this financial crisis. We save so little we need the Chinese to finance our deficits. Let's not discourage Americans from saving by seizing big chunks of their nest eggs when they die.

A Republican proposal to exempt estates worth less than $10 million for couples and $5 million for individuals sounds about right.

Call me liberal, but I believe high earners should pay a bigger portion of their income in taxes than everybody else.

Taxes are user fees for The System - the laws and safeguards that keep the country running. Nobody benefits from The System as much as high earners and the wealthy.

Read the whole thing here.

I expected more critical comments, given that even discussions of raising taxes often prompt allergic breakouts. But I was happily surprised. Here is a sampling of my email inbox this morning.

Thank you for the column you wrote on Sat., 4/18/09. Since I no longer know where I stand on the political spectrum, and get very discouraged by the left vs right dialogue, your sentiments hit home for me, and I'm sure those of many other people.

AND:

I rarely respond to any opinions but felt compelled to in this instance because I agreed with almost all you wrote. But to say only the wealthy are the benefit of the taxpayer bailout of Citicorp etc is just not right. We all may or may not benefit if the Chrysler bailout of 20+ years ago is any historical precedent this so called bailout will cost the taxpayers nothing. But whatever happens we all will either benefit or be hurt. It is just not right to put it on the so called wealthy as the only beneficiaries of this.

AND:

This morning’s work is exceptionally well done. I enjoyed reading it. Thanks for the logical analysis. It is refreshing.

AND:

First let me say, I appreciate the fact that you addressed the subjects today. That is a great start. Where we depart is that some people should pay more and others should pay less. Who gets that power? That’s why this country started by resisting the few that held all the power with no say whatsoever.

Everyone should pay the same percentage. Period. If you make $10,000 or $10,000,000,000. It’s the only fair way to assess people equally. Is that so hard for everyone to understand?

So simple. But our politicians want everyone to be jealous and confused and angry so that we don’t see all the other things they do that really screw us up. But I’m sure you know that already.

Continue reading "Bulletin: Tax column prompts little hate mail" »

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (1)
Categories: Taxes
        

From the Maryland Comptroller:

Are you ready for April 15th?

No? You're not alone. Thousands of Marylanders are in the same boat. That's why I'm inviting you to join me for an online chat.

Visit my official Comptroller's website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

I will be available to answer any questions from last minute filers and to make sure that you don't fall victim to any last minute tax scams. Come, ask your questions and make sure that you don't miss out on your refund!

If you have any tax questions, have any problems with the process or have any questions for me, please visit my official website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (0)
Categories: Taxes
        

Massachusetts's present gas tax is 23.5 cents a gallon, same as Maryland's. From the Boston Globe:

Governor Deval Patrick is considering raising the state's gasoline tax by as much as 29 cents per gallon, which would at once give Massachusetts the highest state gas tax in the country while generating enough revenue to potentially rid the Massachusetts Turnpike of tolls.

But administration officials, responding yesterday to a leak reported in the media, said the governor also was considering a gas tax increase as low as 5 cents and that no decisions have been made.

The gas tax in Massachusetts is 23.5 cents per gallon, which has not been substantially increased since 1991. A 29-cent increase would bring the state's tax to 52.5 cents per gallon. New York currently has the nation's highest state gas tax, at 41.3 cents per gallon.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (1)
Categories: Taxes
        

Greg Mankiw, former chairman of GW Bush's Council of Economic Advisors, repeats his call for a gas-tax increase. From Steve Mufson's and Lori Montgomery's story in today's Washington Post.

N. Gregory Mankiw, a Harvard University economics professor who was chairman of former president George W. Bush's Council of Economic Advisers, supports cuts in payroll taxes partially offset by gradual increases in gasoline taxes. He says more time should be taken to craft spending programs that would not be wasteful.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (0)
Categories: Taxes