Friday, Sept. 21, 2007

Allan Lichtman: Legacy time in Maryland

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State leaders can’t take us to war. The hardest thing they have to do is raise taxes as they now must in Maryland to close the state’s $1.7 billion budget deficit. The legacy of our state’s leaders will depend on their response.

Gov. Martin O’Malley is on the right track with his plan for progressive reform of the state income tax and expanding the tax liabilities of corporations. But he is on the wrong track if press reports are correct and he will propose bringing the scourge of slot machine gambling back to our state. If we had wanted slots, we could have voted Bob Ehrlich back into office.

Governor O’Malley commendably proposed this week to make Maryland’s regressive income tax more progressive. His plan would slightly cut liabilities for about 95 percent of the state’s taxpayers, while increasing taxes for single taxpayers with taxable income of $150,000 or more and married couples with taxable income of $200,000 or more.

The burden will fall disproportionately on taxpayers in Montgomery County. But as Willie Sutton said about why he robs banks: ‘‘That’s where the money is.” Also, let us not forget that wealthy taxpayers reaped enormous windfalls from the federal tax cuts of George W. Bush’s first term in office.

However, O’Malley’s income tax proposal will raise only about $160 million in revenue, a gnat on the elephant of the state’s budget deficit. Most revenue will come from other measures.

Two other good ideas that the governor will likely propose this year are closing tax loopholes for corporations and raising the corporate income tax rate. According to State Comptroller Peter Franchot, about half the big corporations doing business in Maryland pay no state income tax. That hurts every taxpayer in the state.

O’Malley has sensibly suggested that Maryland should require corporations to combine profits from all subsidiaries and assess taxes based upon their Maryland share. This initiative would not put Maryland at a competitive disadvantage. Twenty other states now require combined reporting.

An increase in the corporate income tax rate from 7 percent to 8 percent would likewise not place an undue burden on Maryland corporations. It would only synchronize our rate with those of neighboring states.

A doubling of the Maryland state tax on cigarettes from $1 to $2 per pack is another sound proposal that the governor is likely to endorse. It would both raise revenue and discourage smoking, which hikes the cost of health care in our state.

More dubious is the proposal that the governor is considering to raise the state sales tax from 5 percent to 6 percent. Regressive sales taxes burden businesses in the state and extract a disproportionate share of income from low- and middle-income people. Any sales tax proposal should continue the exemption for food and include other exemptions for basic necessities.

It is unconscionable that O’Malley and other self-professed progressive Democrats, including Montgomery County Executive Ike Leggett, seem to be working to bring the scourge of slot machine gambling back to Maryland. Legalized slot machine gambling is the worst kind of regressive tax that relentlessly extracts hard earned dollars from those who can afford it the least.

As I warned two and a half years ago, ‘‘The big money behind legalized gambling in Maryland ... never sleeps, never rests, never stops coming.” (‘‘Slots fight must go on,” The Gazette of Politics and Business, Feb. 25, 2005). The gambling industry is constantly in search of client politicians willing to do their bidding, Democrats and Republicans alike.

As we learned from painful experience with slots on the Eastern Shore several decades ago, legalizing gambling has a corrupting influence on state and local politics. It gives a huge subsidy to one of the wealthiest and most politically ruthless industries in America. Legalized gambling also brings with it increased bankruptcy, alcoholism, family disruption, crime and soaring law enforcement costs — the number of police officers per capita in Atlantic City is more than double that of Baltimore city.

According to the National Gambling Impact Study Commission, the cost of these social problems is unpredictable and could exceed gambling revenues. The commission warned, ‘‘One of the more damning criticisms of government decision making in this area is the assertion that governments too often have been focused more on a shortsighted pursuit of revenues than on the long-term impact of their decisions on the public welfare.”

If Governor O’Malley and County Executive Leggett are serious about bringing slot machine gambling to Maryland, let them put the slot parlors in their own backyards. But this is only a fantasy, because politicians are rarely willing to face up to the consequences of their actions. But they will have to live with their tarnished legacies.

Allan J. Lichtman is a professor of history at American University and a national political analyst.

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