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Techies Vs. Roads--Maryland's False Choice

For months, the folks who run computer service businesses in Maryland howled and whined about a new tax the state government decided to levy on their industry. The politicians heard and backed off. Last week, legislators eliminated the tech tax before it had even kicked in.

But to fill the resulting gap in the state budget, the lawmakers decided to do two things: Soak the rich and rip off Maryland's transportation kitty.

Socking it to the mere 6,000 Marylanders who make north of a million a year is a no-brainer. Those folks can afford vastly more than the extra $17,000 a year that the state now proposes to charge them for the right to get fat off the labor of state residents. And surely the politicians are safe in pushing around the ultra-rich; hey, a whopping 40 percent of the state's millionaires live in Montgomery County, which Maryland routinely treats as its cash cow.

But the tax on millionaires only hauls in about half of the $200 million a year that the tech tax would have produced. So Maryland is now moving to cut transportation spending by slicing back the Transportation Trust Fund by $50 million a year for the next five years--and this is where the legislators are veering off the rails.

Now, thanks to the bill backed by Senate President Mike Miller and Gov. Martin O'Malley, all of Maryland will have to pay to keep those computer businesses comfy. "The money hasn't even hit the trust fund yet and they're already raiding it," says Lon Anderson, AAA's director of government affairs. "It should be renamed the State of Maryland Cookie Jar."

The trust fund is a collection plate for the taxes you pay when you buy gas. "The politicians see that huge pile of cash and think 'oh, nobody will miss this,'" Anderson says. "Oh, yes, we will."

Maryland's own studies say the state has a $40 billion backlog in road maintenance, highway and transit projects, yet now the state proposes to do less, not more for what many residents see as one of the top three functions of state government.

The raid on the transportation money comes just after Maryland moved in a special session last year to add $450 million a year to road and transit spending, just to get the state up to 70 percent of its budget goal for transportation spending.

Anderson says the legislature's own statistics show that Maryland has borrowed $571 million from the transportation kitty since 1984 and has paid back less than one-third of that amount.

The games players in Annapolis need to know that taxpayers are watching.

By Marc Fisher |  April 7, 2008; 7:51 AM ET
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Comments

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The original idea was to tax health clubs, but their lobby already had their ducks in a row, the techies did not... So they became a last minute surprise victim.

In my opinion Maryland should either tax all service based industries or none of them. This (service) industry yes and this (service) industry no attitude is rather unfair.

Posted by: Just to be fair... | April 7, 2008 8:53 AM

I agree with the above comment. No one has articulated a rational basis for applying sales taxes to some services and not to others. Exceptions are being carved out when someone complains in a politically effective manner. Another decision by O'Malley and the legislature to attempt to avoid a hard choice, or at least delay it in the hope that it'll be a problem only for their successors.

Posted by: Lindemann | April 7, 2008 8:56 AM

Like all good socialists, Mr. Fisher starts with the premise that THE PEOPLE (presumably the people in the lower and middle classes) own everything jointly. He further posits, like a good socialist, that the people are too stupid to manage their property, so it belongs to the state by default. This is the logic that says that lowering taxes is "stealing from the people." Funny. I thought the people paid the taxes.

The politics of envy are all over this rant. People who earn high incomes "get fat off the labor of state resident?" Do you know that for fact? Or is that just a dearly held article of your socialist faith?

Repealing the tech tax is not about making tech business "comfy." It's about not charging sales tax on a service, it's about not asking a single (under-represented!) industry to shoulder the burden of government's fiscal mismanagement and uncontrolled growth, it's about standing up AGAINST taxes that are rushed through with little to no opportunity for public comment, as this one was. (Public comment, by the way, would be offered by "THE PEOPLE." Or are they also too stupid to be asked to comment on the laws passed by their betters?)

The repeal is also about asking our legislators, "was that vote in November a good idea? Did you really think about it?" In this case, it seems the answer was "no." Now, at least, they're cleaning up their own mess.

Posted by: Steven H. Wilson | April 7, 2008 9:01 AM

I think the rational basis for not applying sales taxes to some services (I.e. Computing work) is that this is NOT a common practice and serves as both a competitive disadvantage for Maryland companies - reducing other revenue generated by these companies, and more importantly serves as motivation to move to a more business friendly state on the other side of the river. The tech tax was a ridiculous boondoggle of an idea. In hard times, states have to reduce services. This is happening all over the country. Here in MD, the retards want to fix the problem by increasing the already ridiculously high taxes. You cannot get blood from a turnip.

Posted by: New to MD | April 7, 2008 9:04 AM

Steven H. Wilson: You nailed it! But let me expand a little. Marc wants the tech industry taxed in Maryland for another reason: They don't have a special tax for them in Virginia, so the tech companies will all move there. And take the high paying jobs will go with them. Then the INCOME taxes will go to Virginia, not Maryland. For some reason, he has forgotten about the income taxes that are already being collected by the state of Maryland.

He conveniently omits the fact that the people working for the tech companies are already enjoying the fruits of their labor. He implies that the "people getting fat ", as he refers to them, are the only people who benefit from the tech companies. For some reason he is anti-entrepreneur and feels ALL of a company's profit should go to the employees and the people who risk everything they own to form the companies are entitled to nothing.

Bet he makes Karl Marx proud, doesn't he?

As far as O'Malley's budget is concerned: maybe he shouldn't have increased spending without having the money to pay for his little pet projects. Then again, all he really is doing is trying to buy enough votes to get re-elected.

Posted by: SoMD | April 7, 2008 9:24 AM

Marc,

It's those millionaires who help start new businesses and invest to promote the growth of business in MD! Not the middle class,or even those folks making $100k to $300k like you. These millionaires will find ways to shelter their income and as result investment will suffer. Hillary and Obama promote the same stupidty tax the rich. Repeal the Bush tax cuts. Smart move in a recession. Nothing like a dem in WH to turn a mild recession into a full scale depression since the rich dont trust dems. Business investment and expansion suffer and as a result your recession turns into a depression And Obama spending tax dollars on rebuilding the infrastructure wont turn the economy around. The Great Depression ended because of WWII not because of FDR's economic policy and govt spending. Sorry. less taxes and less govt spending is good for the economy. Not more!

Posted by: Anonymous | April 7, 2008 9:45 AM

The politicians in Maryland (and DC) tax everything but your memory and your patience. And that's because they haven't been able to figure out how to tax those two things.

On a really good day, the average taxpayer gets back half a buck in public services on every dollar paid in taxes.

I'm no conservative ideologue (far from it), but when times are tough, I cut my spending. Why can't our local politicians do the same?

Posted by: Voter and taxpayer | April 7, 2008 10:36 AM

When you put this whole argument in the perspective of the completely un-justified $3,100,000,000 ICC Toll road project, it seems completely hopeless. To state that Maryland has a $40 million backlog in road maintenance is probably very optimistic (though MD roads are among the best maintained in the nation). Once the transportation fund is really squeezed by the ICC rip-off....we'll really start seeing a backlog and if it is not corrected, neglect.

As taxes are raised, and roads are neglected, I hope someone will hear out the tax-payer and insist that a true assessment of the $3,100,000,000 ICC project is completed. The "assessment" completed by Bush/Erlich did no justice to the tax payers of Maryland or the future of the states transportation system.

Posted by: Donny | April 7, 2008 11:30 AM

Cutting spending would have been the preferred way to deal with this, but that isn't something the Maryland legislature knows how to do!

Anybody with a business is already in Virginia. Most tech jobs are too. I felt it was important to axe the tech tax because it would further push entry-level tech jobs out of state. I have two children -- both work in Virginia.

Remember that those with million dollar incomes are wily. Most will work hard to moving their incomes around so they can skip the tax.

Posted by: RoseG | April 7, 2008 11:49 AM

What about lowering the tax rate on computer services? That should have been an option. 1%, 2%, make them pay their fair share.

Thx,

Jay!

Posted by: JayRockers! | April 7, 2008 9:04 PM

I was wondering if I'd see a comment about the ICC, and commenter Donny didn't disappoint. The question that comes to mind on that, however, is when will people accept that the ICC is already being built? Now that construction has begun, trying to keep that construction from starting is somewhat pointless.

Posted by: mcrochip | April 7, 2008 9:25 PM

This is a valid point about the $3,100,000,000 ICC toll road someone has raised and it should be addressed. "Construction" has begun, but what has really occurred is seizure of previously protected land (backyards, parkland, nature reserve, etc.) which was previously off-limits to developer$. Much bulldozing of this land has occurred, thus making it developable. Many taxpayer dollars have been handed over to the contractors.

No grading or road building has begun. Putting this current state of "construction" in perspective of Marylands' transportation fund shortage and last tax hike, I think someone will have to admit the ICC is unafforable and unjustified. When the road project is scuttled, all will not be lost.

Many millions of taxpayers' dollars will have changed hands and much land that was off-limits to developers will have been seized and cleared for development.

I hope I am wrong about this. Most I've talked to see it as an inevitable conclusion. Maryland cannot afford to complete the $3,100,000,000 ICC toll road. How it will be decided, announced, and who will be holding all that newly created real-estate remains to be seen.

Posted by: Donny | April 8, 2008 9:24 AM

Has anyone even considered that this could turn out to be quite a scam? All that land rezoned, seized, and cleared for "construction" all at taxpayers' expense? Pure genius.

Posted by: Donny | April 8, 2008 10:29 AM

"The Great Depression ended because of WWII not because of FDR's economic policy and govt spending. Sorry. less taxes and less govt spending is good for the economy. Not more!"

Yeah, the economy was really coming back strong in 1932 due to Hoover's policies. So why was FDR elected again? (And WW2 produced the largest gush of government spending ever, for obvious and necessary reasons.)

"Repeal the Bush tax cuts. Smart move in a recession."

Um, who is president in the current recession/depression? And it's too late to blame Bill Clinton or 9/11.

This sort of economic "analysis" could have been written by a three year old with no grasp of economics or politics other than "R good, D bad."

Posted by: Mkarns | April 8, 2008 2:06 PM

Well said. I hate to waste my comment space on that GOP dribble, though.

Posted by: Donny | April 8, 2008 5:18 PM

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