A sweeping proposal to increase taxes on Maryland’s highest earners and corporations received a lukewarm response from lawmakers in back-to-back days of hearings this week — exposing the continuing divide in Annapolis over how to solve the state’s looming financial problems.
Proponents of the legislation, known as the Fair Share for Maryland Act, say it would raise $1.6 billion at a time when officials are warning of future budget deficits while also promising to complete ambitious policy goals.
But as the Maryland General Assembly’s annual three-month session enters its second half, chances of a major tax overhaul in 2024 remain slim.
“We’re just not ready to get into those details,” said Sen. Guy Guzzone, a Democrat who serves as the Senate’s top budget negotiator, in an interview after his committee held a relatively subdued hearing on the Fair Share bill Wednesday.
The legislation introduced last month would raise the bulk of its money from corporate taxes by allowing what’s known as combined reporting — which prevents multi-state companies from using shell companies to avoid state taxes — and forcing payments from companies that are incorporated in certain ways to avoid paying taxes. The bill also would raise personal income taxes on households making more than $250,000 while providing a tax break of a few hundred dollars for lower earners.
Neither the Senate hearing nor a similar one Thursday in the House featured extensive questioning from lawmakers as advocates and legislative sponsors promoted the ideas.
In one of the brief moments of public debate, Del. Melissa Wells questioned lobbyists for businesses forcefully opposed to the tax hikes.
“Where do you think we’re going to find the money?” asked Wells, a Baltimore City Democrat, noting that she doesn’t think it should just fall on companies. “But realistically, where should we all give and take? … Can someone give me one or two ideas about where we can find the resources that help not only keep our communities viable but keep the very people that you represent, keeping their businesses viable? What is your suggestion on how we can solve that problem?”
Those questions probably won’t be answered before lawmakers gavel out of session April 8.
Negotiations on Democratic Gov. Wes Moore’s $63.1 billion budget proposal are ongoing and set to kick into high gear starting in early March. The governor has said his bar for raising taxes is “very, very high” and instead he’s aiming to fill an immediate $1.1 billion cash shortfall for the fiscal year starting July 1 by reducing spending on some programs, pulling from the rainy day fund and increasing borrowing.
If passed, his budget would leave the state on the hook for a growing structural deficit that could hit $3 billion in four years, even as billions of dollars in required future spending loom on education, climate and transportation plans.
“We need to make changes this session if we are going to avert deep budget cuts,” said Del. Julie Palakovich Carr, the primary sponsor of the Fair Share bill in her chamber.
The Montgomery County Democrat’s bill is cosponsored by a third of the 102 Democratic members in the House. But in a continuing sign that the Senate is less inclined to consider large revenue-raisers, just four of the 34 Senate Democrats have signed on to their version.
Not only has Senate President Bill Ferguson, a Baltimore Democrat, said the time isn’t right for “a whole-scale conversation about revenues,” he also expressed little interest in the ideas presented in the Fair Share package. In late January, he said that they “may” be “worth a conversation down the line in subsequent years.”
Citing the impact on Maryland’s business climate, Ferguson said he’s personally opposed to some of the bill’s provisions, including the so-called “throwback rule,” which proponents say would close a loophole by requiring corporations to pay Maryland taxes on sales shipped to other states where they’re not taxed.
“It’s got to be viewed in the lens of competitiveness for the state of Maryland,” Ferguson said. “We have to compete with the states around us.”
Guzzone said many components of the legislation “are problematic in some way.” He declined to discuss those pieces in detail, though he noted they’re all ideas lawmakers have considered in the past. Until this year, they have not been proposed in a single, complicated package like the Fair Share plan, and the individual pieces have not gotten close to passing previously. Combined reporting, for instance, has been a challenge for lawmakers to evaluate for years because the tax revenue from year to year could vary widely, he said.
That argument also was made by lobbyists who called the form of combined reporting in the legislation — which goes beyond just profit made in other states and includes overseas profits — a “volatile” source of funds.
“If we need funds for the priorities that you’ve outlined, there’s probably a better place to get it than this,” said Andrew Griffin, a lobbyist for the Maryland Chamber of Commerce, while responding to Wells’ question about other funding sources. “Do I claim to have all of the answers? No. But what I’m contending is you’re not going to have a stable source of revenue.”
Questioned by House Minority Leader Jason Buckel, an Allegany County Republican, about whether the taxes would scare businesses away from the state at a time when economic growth has been stagnant, a former executive in charge of developing tax-avoidance policies said “it’s simply not going to happen.”
“My old buddies aim to keep Maryland a willing victim of their abusive tax dodging,” said Don Griswold, who worked as executive tax counsel for Warren Buffett’s Berkshire Hathaway and led a 600-person tax team at KPMG, one of the world’s largest accounting organizations.
Griswold told lawmakers in both hearings that the cost of moving businesses out of or into the state is not worth more to large corporations than the taxes they’d pay under the bill.
“The tax burden that we’re talking about, the avoided tax that they have to pay back, it’s enough for them to hire former high-priced me to design strategies to avoid that tax. It’s enough for them to pay lobbyists to come defend it. But it’s a sliver of a sliver of a sliver of what they care about,” said Griswold, now a senior fellow at the liberal-leaning think tank Center on Budget and Policy Priorities.
Palakovich Carr, the bill’s sponsor, said conversations are ongoing, though she acknowledged both chambers and Moore’s administration will need to be on board.
“We’re not there yet,” she said.
Carr pointed to other ideas for revenue that are also in the works this session. One of hers would allow counties to raise local income taxes from a maximum of 3.2% to 3.7%. Other bills would increase Maryland’s vehicle excise tax from 6% to 6.5% in order to raise around $200 million annually within a few years. Republicans in the minority have said such proposals will increase the burden on working families.
Guzzone, for his part, said one area where his Senate committee is likely to move forward is on a new surcharge fee for registering electric vehicles that don’t pay the state’s gas tax. Fuel-efficient vehicles, along with other issues, are straining resources for the state’s six-year transportation plan, leading to a $3 billion cut announced in December.
A task force studying the transportation funding issue recommended implementing fees on electric vehicles and increasing tolls this year. Guzzone said lawmakers haven’t “nailed down the exact number” for the fees, but he’s introduced a bill to debate a $100 annual surcharge.
As for a larger revenue discussion, Guzzone said it’s incumbent on state leaders to make the case to the public before they “even consider raising revenues.”
“Nobody wants to increase anybody’s taxes. Ever. We don’t,” Guzzone said. “Part of the process is a responsibility on the part of all of us elected officials, who believe in the things that need to be accomplished, to communicate what that is and what it means to people in a real way. And I don’t believe that that’s been done yet.”
