Commentary

The O’Malley Tax Heist

Gov. Martin O’Malley called Maryland’s lawmakers back to Annapolis late last year for a special session of the General Assembly. The assembled pulled off one of the greatest tax heists in history.

After some hand-wringing and cosmetic attempts to rein in surging state spending, Gov. O’Malley and the leaders of the Senate and House of Delegates got down to the real business at hand — tax increases, big ones. At the end of the special session, the top personal and corporate tax rates were increased by 16 percent and 18 percent, respectively. And the sales tax, which kicked in on New Year’s Day, jumped from 5 percent to 6 percent, a whopping 20 percent increase.

All these tax increases were enacted under the ruse of a so-called structural budget deficit and a mandate to spend more money on education. To put it politely, this is an uninformed rationale. Researchers from the Washington, D.C.-based Brookings Institution, no bastion of conservatism, have concluded: “As for money, the relationship between it and effective schools has been studied to death. The unanimous conclusion is that there is no connection between school funding and school performance.”

The economic impact of pushing Maryland’s “high” taxes even higher is predictable. Adam Smith, one of the fathers of modern economics, had this to say in “The Wealth of Nations” (1776): “The proprietor of stock [real capital] is properly a citizen of the world, and is not necessarily attached to any particular country. He would be apt to abandon the country in which he was exposed to a vexatious inquisition, in order to be assessed to a burdensome tax, and would remove his stock to some other country where he could either carry on his business, or enjoy his fortune more at his ease.”

With a heavier tax burden, the migration of people from Maryland to locales with lower taxes, such as Virginia, will accelerate. This is bad news, as Maryland lost 37,847 citizens to domestic migration over the 1997-2006 period. That exodus has pushed Maryland to the lowly rank of 35th among states, and that was before the new tax increases. It was also before Gov. O’Malley announced his budget for fiscal 2009, which contains a hefty 5.9 percent increase in spending. Yet more confirmation of Gov. O’Malley’s tax-and-spend propensities.

Just when Washington considers mitigating the coming recession by cutting taxes, Gov. O’Malley increases Maryland’s by a huge percentage. What is the poor taxpayer to do? Either remember with each purchase the O’Malley tax heist — grin and bear it — or immigrate to a better-administered state.

Steve Hanke is a professor of applied economics at Johns Hopkins University and a senior fellow at the Cato Institute. He served as a member of the Governor’s Council of Economic Advisors in Maryland from 1976 to 1977.