Tag: tax structure

Chesapeake Prosperity Sunk by Boat Tax

The reigning politicians in my home state of Maryland are somewhat boxed in by geography. Clearly they are smitten with high-tax policies: the Tax Foundation rates the state’s overall tax structure among the country’s most onerous, 42nd out of 50, and the trend lately has not been favorable, with lawmakers having raised taxes and fees 24 times in just the past couple of years, as the Maryland Public Policy Institute points out.

On the other hand, Maryland’s smallish size and attenuated shape poses a tricky problem: most of the state’s population lives just a short drive from other states, and choosing to shop or do business in one of those other states—maybe even switch one’s residence there—is far less disruptive than it is for most Californians. Virginia has lower gas and sales taxes, for example, while Delaware levies no sales tax at all. Politicos still hotly dispute how many high earners were driven away by a 2007-2010 special “millionaire’s tax,” but no one argues with a straight face that the number was zero. Business taxes in Maryland, as the Tax Foundation explains, are set up so as to fall relatively lightly on mature incumbent businesses and much more heavily on new startups; that probably does dissuade some established businesses from fleeing, but at the alarming cost of stifling the new kind.

Over the weekend the Capital Gazette of Annapolis ran a news story about how marinas and other shoreline businesses have been badly hit by Maryland’s decision to retain a stiff excise tax on boat ownership (five percent of value if kept in the state more than 90 days a year). Other big maritime Atlantic states such as Virginia, Delaware, and Florida all offer better deals. The results? Boat owners keep their vessels elsewhere, registrations have drooped, and docking, repair, supply, and restaurant businesses suffer, the Capital Gazette reports:

It’s hard to fathom Maryland, home to Annapolis, known as the “Sailing Capital of the World,” would be in the bottom half of the country in total sales for boats, engines, trailers and accessories.

Yet Maryland’s sales fell from $183 million in 2010 to $162 million in 2011, placing the state No. 26 in the nation. In 2008, that number was $248.5 million.

Even the revenue from the excise tax itself is way down, “from about $29.9 million to $15 million” since 2006, the newspaper adds.

It’s as if the lawmakers in Annapolis didn’t realize that boats are mobile. I wish someone could have explained that to them.

Maine’s Supply-Side Democrats

The class-warfare crowd in Washington wants bigger government and higher tax rates, so it’s a bit shocking to see that a group of Northeastern Democrats are slashing tax rates. Yet that is exactly what Maine’s politicians are doing. The Governor even makes the common-sense observation (that so far has escaped President Obama’s attention) that there won’t be any jobs without investors and entrepreneurs. The Wall Street Journal approves:

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state’s graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine’s tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets. This is a big income tax cut, especially given that so many other states in the Northeast and East – Maryland, Massachusetts, New Jersey and New York – have been increasing rates. “We’re definitely going against the grain here,” Mr. Baldacci tells us. “We hope these lower tax rates will encourage and reward work, and that the lower capital gains tax [of 6.85%] brings more investment into the state.” …One question is how Democrats in Augusta were able to withstand the cries by interest groups of “tax cuts for the rich?” Mr. Baldacci’s snappy reply: “Without employers, you don’t have employees.” He adds: “The best social services program is a job.” Wise and timely advice for both Democrats and Republicans as the recession rolls on and budgets get squeezed.