Testimony of the Maryland Taxpayers Association, Inc.
http://www.mdtaxes.org/
To the Maryland Senate Budget & Taxation Committee
On the state's revenue structure.
October 7, 2003

DON'T RAISE TAXES, INSTEAD SLASH BAD REGULATIONS;
IDENTIFY, THEN UPGRADE CORE STATE FUNCTIONS;
LOOK AT SELLING EXCESS ASSETS,
PRIVATIZING SOME MDOT ACTIVITIES.

Chairman Currie, and members of the committee: We are respectively Dee Hodges, president of MTA, and Richard Falknor, executive vice president. MTA asks Maryland elected officials for their pledge not to raise taxes, and acts toward making Maryland government more efficient.
MTA strongly recommends the enactment of a Maryland Taxpayer Bill of Rights (TABOR), to get underway the long process of building a pro-growth economy in the Free State.

Colorado has had more experience with the TABOR mechanism of constitutional tax and spending limits than any other state. Maryland (and Virginia) are just learning about this approach. According to one budget expert,

"TABOR imposes two types of tax and spending limits, both substantive and procedural limits. The substantive limit imposes a cap on the amount of revenue that governments can keep and spend. TABOR imposes a cap on state revenue growth equal to inflation and population growth. The cap applies to a broad definition of state revenue including general funds and cash funds, with a few exceptions. The procedural limit requires voter approval for governments to raise taxes, or to keep excess revenue over the cap."

A Maryland TABOR could not get onto the ballot until next year. Our citizens will come to realize during the public debate, however, just how much power a full-fledged TABOR could transfer to them from professional politicians and career civil servants.

Tax and Spending Cuts and a Pro-Growth Maryland Business Climate

In the meantime, we need to look at the way Maryland government does business and whether it creates a pro-growth economy.

Let's look at the state-by-state business tax climate index+ where Delaware, Pennsylvania, and Virginia beat Maryland.

"Tax competition among states is an unpleasant reality for state revenue raisers," said Scott Hodge, Executive Director of the Tax Foundation and lead author of the new study, "but competition is a godsend to taxpayers. The most effective restraint on state taxes is the knowledge that business will take jobs and prosperity out of state if taxes become unmanageable."

We believe that both the new Administration and the General Assembly, beguiled by various slots proposals, have failed to put serious energy and analysis into streamlining Maryland government and thus taking care of the budget deficit.

As far as slots are concerned, the respected Minnesota Taxpayers League makes an important point:

"In recent years there have been numerous attempts to expand gambling in Minnesota in order to increase state revenue, or fund unpopular projects such as state funded stadiums."

The League adds that

"under no circumstances should the state be allowed to get further into the gambling business. All it does is fuel the growth in government spending. Accountability in government would be the real loser in this deal." (Our emphasis.)

MTA agrees with the League's position unless Maryland approves the stringent constitutional spending and tax limits of a Taxpayer Bill of Rights that follows the Colorado model.

MTA, on the other hand, urges both Maryland parties to work together to

• identify Maryland government's core roles;
• build competition and thus accountability into our school system;
• build and rebuild infrastructure with public-private partnerships;
• examine what kinds of real property holdings and major enterprises Maryland should keep and what kinds Maryland should sell;
• put the civil service on a business basis with "pension liberation" attracting fine talent to an admired Maryland public service; and
• take steps to lighten the $17 billion state and local regulatory burden on the Maryland economy.

But raising Maryland taxes is a terrible idea, and will also quickly lower the pressure to reform Maryland government.

Does Maryland have a revenue crisis?

Let us turn to a recent study by our sister organization, the Maryland Tax Education Foundation:

"But the answer to Maryland's so-called "crisis" is neither tax hikes, slots legalization, nor cuts in necessary programs. The solution is to cut through the political rhetoric and realize that state revenues and spending are actually up in fiscal 2004. Out-of-control state spending and the overtaxation that comes from it are the only real problems here.

Despite what the tax grabbers in Annapolis say, there is no budget crisis - only shameful scare tactics and propaganda from the crowd that always wants more.

In fiscal 2003, general fund revenues dropped a mere 1.4%. IS THAT A CRISIS? What Maryland family couldn't survive a 1.4% decline in income without becoming hysterical? Even so, spending in fiscal 2003 jumped almost 5% as the State dipped into reserve funds to pay for the difference.

Fiscal 2004 general fund revenues are slated to go up 1.1% according to the Department of Legislative Services (MTEF attended the Ways and Means Committee hearing in Annapolis in July), with spending projected at a 0.8% increase. IS THAT A CRISIS?

The next set of problems begins in the fiscal year starting July 1, 2004. That's when spending hits a 6% to 9% annual trajectory, yet revenues only climb 4% per year. The State's population grows by 1% per year, and inflation is 2% per year, and productivity rises 1%. So a 4% annual revenue increase seems sensible. Why does spending have to rise by 2x this amount? It's obviously a crisis caused by the State's inability to live within its means, and set priorities."

It bears repeating in Annapolis that business, not government is the fundamental source of jobs and prosperity. Most new jobs come from independent business. Yet the Small Business Survival Committee last month finds that Virginia, Pennsylvania, and Delaware rank ahead of Maryland on the Committee's index* of how 'friendly their policies are for entrepreneurship.'

Health Care and Transportation Financing

This is necessarily a short presentation, but we don't mean to neglect either transportation or financing health-care.

The Heritage Foundation's health-financing guru (and Maryland resident) Dr. Robert Moffitt speaks of

"the enormous popular appeal [of ] the Governor and the state legislators . . .opening up their own health insurance system, the system that covers him and his family, to Maryland's uninsured citizens."

Moffit has sketched a market-based, consumer choice health-financing system for Maryland.

It is important to consider transportation expert Peter Samuel's advice about

"the positive value of toll financing, and especially the variable toll rates as a traffic management tool as exemplified by the variable toll projects in California and New York. In those cases it has been shown that by using variable tolls to prevent a breakdown in traffic flow, it is possible to maintain throughput, reduce pollution, and make commuters happier by ensuring speedier and more predictable travel times."

The Maryland Taxpayers Association, Inc. stands ready to work with members of both Maryland parties and both branches of Maryland government to build an opportunity society in the Free State.

We have cited a variety of studies published under the auspices of free-market oriented research organizations, and one particularly significant analysis on state regulation authored by MTA Board member and national regulatory expert Edward Hudgins.

Much of this material is available on our website http://www.mdtaxes.org, and MTA's officers and experts stand ready to help where needed.

NOTES

+ The common characteristics of states that score poorly on the State Business Tax Climate Index are: complex, multi-rate corporate and individual tax codes that impose above-average tax rates at all levels of income; above-average sales tax rates that exempt few business input items; high overall state tax burdens and revenues that have grown faster than citizens' incomes; and tax codes that impose considerable compliance costs on businesses.

* The `Small Business Survival Index 2003` ties together 21 major government-imposed or government-related costs affecting small businesses and entrepreneurs across a broad spectrum of industries and types of businesses -- personal income taxes; capital gains taxes; corporate income taxes; individual alternative minimum taxes; corporate alternative minimum taxes; indexing of personal income tax rates; property taxes; sales, gross receipts and excise taxes; death taxes; unemployment taxes; health care costs; electricity costs; workers` compensation costs; crime rates; right-to-work status; number of bureaucrats; tax limitation status; Internet taxes; gas taxes; state minimum wages; and state legal liability costs.

Note: This testimony first appeared on the Maryland Taxpayers Association website.