Tuesday, July 23, 2013

Let's Cut (Middle Class) Taxes

An editorial in the Baltimore Sun by Christopher Summer of the conservative Maryland Public Policy Institute notes that tax cuts may be in Maryland's future and that they should be directed towards lowering the corporate tax rate.  Accepting the presumption that revenues will outpace expenditures to a significant enough level to prompt tax cuts, I think it may be more prudent to make tax cuts to help the middle class and put more money in the hands of consumers.

We should all be a little skeptical of anyone who makes blanket statements that a certain tax cut will "benefit all" as alleged by Mr. Summers.  This is the carrot used to get buy-in for "other people's" taxes being lowered.  "It will help the economy."  "It will create jobs."  "It will spur growth."

These are all important aspirations, but there is very little data to support the blanket statement that cutting corporate taxes or cutting taxes for the most wealthy among us (in a uniform cut across all rates) does these things.  Yes, having a corporate tax rate competitive with Virginia may encourage more large employers to come to Maryland, but our state has assets that make us competitive on different grounds: the best schools in America, a well-regarded university system, and some of the best research institutions in the world.  The corporate rate in Virginia is not static and there is nothing to stop a self-destructive race to the bottom between Maryland and our neighboring jurisdictions to make corporations perfectly comfortable while the rest of us feel the squeeze.  (Never mind the fact that D.C.'s corporate tax rate is nearly 10%.)

How about a tax cut that helps you?  If we want to help the middle class, directly and without depending on anything to "trickle down", let's just help the middle class.

College Tuition Tax Credit - Maryland does not allow a tax credit for amounts paid on higher education either by the student or their family.  In fact, filers are sometimes penalized for not taking out the tax credit between their federal and state returns.  Instead, Maryland promotes tax-deductible savings plans, which, while helpful, do not benefit families who find themselves paying more than expected on high education or working students who are paying as they go.  This is an expense born by thousands of middle class families and would put more money back in their pockets by crediting it against their tax liability.

Earned Income Tax Credit - Maryland allows families making under $45,060 to claim up to 50% of the federal earned income tax credit on their state returns, with up to 25% being refundable.  This is an effective means of helping lower income families through our tax system.  Let's expand the credit to 75% and make more of it refundable. 

Small Business Property Tax Rebate - Last session, Delegate Heather Mizeur proposed a bill that would have created a rebate for small businesses (25 employees or less) to reduce the personal property tax they pay on their machinery, equipment, inventory and other personal property.  Del. Mizeur's rebate was premised on combined reporting, but this rebate should be explored long before anyone looks to cut corporate tax rates to lure out-of-state businesses to come to Maryland.

The key to all three of these proposals is that they provide focused tax relief on middle class families.  We are often tempted into tax schemes that provide some relief for middle and lower class families while the greatest benefit falls on those at the top.  That is not inevitable in tax policy.  We can do a better job helping the middle class, invigorating consumer buying-power, and...help the economy.

That's all for today.  Have a great Tuesday doing what you love!