Maryland and D.C. were in sharp contrast last week when approving tax policies and budgets for their respective upcoming fiscal year.
Maryland’s General Assembly passed a broad five to 10 percent state income tax hike proposed by Gov. Martin O’Malley on wage earners now dubbed “thousandaires” while the usually spendthrift D.C. Council adopted a budget with no tax increases at the urging of Mayor Vincent Gray and Council chair Kwame Brown.
The unpopular and retroactive Maryland income tax increase will fund nearly $1 billion in additional spending and resulting state budget deficit. D.C. chose instead to continue utilizing spending cuts as the primary tool in closing its own $172 million projected budget gap.
Included among additional Maryland fee increases is one that gives new meaning to the phrase “death and taxes” – the state doubled the price of a death certificate to $24.
D.C. Council members, however, developed a “wish list” of a quarter-of-a-billion dollars in additional spending should revenue exceed projections for the fiscal year beginning Oct. 1. The legendary local reflex to tax and spend is a long-ingrained habit not easily weaned.
Reducing the District’s business tax rates, the second highest in the country, or the tax burden on residents, fourth highest nationwide, occurs to a lonely few among those with an office in the John A. Wilson Building.
Approval of O’Malley’s tax hike required a special legislative session to wrestle passage, with some Democrats in the statehouse majority refusing to support the increase. It affects 16 percent of taxpayers and initiates on those earning only $100,000 or couples filing jointly earning only $150,000 combined.
Hard hit will be small business owners throughout the state reporting net business revenue as personal income.
These new low-threshold definitions of Maryland’s “wealthy” will affect approximately one-fourth of taxpayers neighboring the District in Montgomery County, where 40 percent of increased income tax revenue will originate among only 18 percent of the state’s population.
Meanwhile, having agreed on revisions to Mayor Gray’s budget proposal in advance and with his approval, the D.C. Council quickly dispatched without rancor and with unusual unanimous agreement a no-tax-increase budget package in the first of two votes. Final approval is scheduled for June 5.
The D.C. budget compromise includes a partial implementation of Mayor Gray’s proposed one-hour extension in the maximum allowable alcohol service period at the city’s restaurants, bars and hotels to generate additional sales tax revenue and assist in budget balancing. Chairman Brown’s substitute plan allowing later bar hours on 19 dates – until 4 a.m. on the night before all 11 federal and D.C. holidays as well as Friday through Sunday preceding Memorial Day and Labor Day and when New Year’s Eve and July 4th fall on a Monday – was approved by voice vote.
Presumably hoping to deflect the isolated ire of some citizens groups and Advisory Neighborhood Commission (ANC) members opposing later bar hours, the Council deferred what many consider the inevitable expansion of alcohol service hours in a city evolving toward a world-class 24-hour economy.
D.C. Council member Jim Graham found himself alone in voicing objection to the alcohol service extension option. Council disfavor of instead raising the alcohol excise tax proved so pervasive that Graham did not introduce his idea to nearly quadruple the rate – opposed by hospitality businesses, alcohol retailers, local alcohol brewers and distillers, and alcoholic beverage distributors.
D.C. elected officials relished the comparison between the two jurisdictions.
D.C. Council member Jack Evans, chair of the Committee on Finance and Revenue, publicly exclaimed following an initial round of Maryland tax hike debates, “Thank God Maryland keeps raising their taxes, one of these days they’re going to catch up to us.” D.C. Council Chair Kwame Brown reminded local TV news viewers on the day of the Council vote, “if you’ve noticed, Maryland is raising taxes – they’re raising income taxes and commercial taxes.”
Maryland House Minority Leader Anthony O’Donnell had previously responded to Evans’ comments in an interview with a Washington reporter, “Much to my chagrin, I’d have to agree with Councilman Evans.” He further lamented, “Maryland is increasingly perceived as a state that’s hostile to business. When you have D.C. of all places poking fun at you, it’s pretty bad here.”
Mark Lee is a local small business manager and long-time community business advocate. Reach him at OurBusinessMatters@gmail.com.