Cost of Government Day (COGD)
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Title: In context, Maryland's tax ranking keeps changing

Date: July 25, 2003

Source: The Daily Record

Words: 705

During briefings in Annapolis on the state fiscal situation last week, James C. "Chip" DiPaula Jr., the administration's top budget official, told legislators, reporters and anyone else who would listen that Maryland has the third-highest taxes in the country.

The line has become the latest talking point for Gov. Robert L. Ehrlich Jr., who has repeatedly vowed to oppose new sales and income taxes, and, according to various sources, is a true statement -- but even true statements could benefit from some context.

As noted by Warren G. Deschenaux, the top budget analyst for the Department of Legislative Services, U.S. Census Bureau statistics for 1999-2000 show Maryland taxes are the third-highest in the country as a percentage of state revenue. About 62 percent of state revenue comes from taxes, trailing only New Jersey and Connecticut.

But when ranked by what residents typically pay in taxes as a percentage of personal income, Maryland is below the national average. The average Marylander pays about 10.3 percent of income in taxes, which ranks 30th highest nationwide. In comparison, Delaware ranks 19th, while Pennsylvania ranks 36th and Virginia 43rd.

While the state collects a high percentage of revenue from taxes, its total revenue is only 21st in the nation. When indexed to personal income -- Maryland is the sixth wealthiest state -- the state's rank drops to 48th.

As noted by the Maryland Budget and Tax Policy Institute in a 2002 report, only New Hampshire and Nevada collected less revenue as a percentage of personal income. Only Maryland's personal income tax exceeded national averages, and the sales, property and corporate income taxes were among the nation's lowest.

When state and local taxes were combined, the report said, Maryland had the 12th highest tax rate in the country. But, the state ranked just 38th when taxes were indexed to personal income and few states had cut taxes since the 1970s as much as Maryland.

The report concluded that Maryland was a low tax-low revenue state, especially because of its wealth.

Americans for Tax Reform, headed by leading anti-tax advocate Grover Norquist, ranks Maryland's cost of government as 17th highest in the nation. In calculating its rankings, the group includes regulatory costs -- including fees tucked into the price of products such as tires -- as well as taxes at both the state and federal level.

Neighboring Virginia ranks 21st, while Pennsylvania ranks 27th, Delaware 39th and West Virginia 44th.

By its estimates, Marylanders must work 190.1 days to support the cost of state and federal government. Because it is a state with higher average income, Maryland carries a larger burden of federal costs but still comes in just below the national average of 192.5 days.

One other comparison comes from Governing Magazine, which grades state tax systems on the adequacy of revenues, their fairness to the taxpayer and the management of the system.

Maryland received two of four stars in the first two categories and three of four stars for management. Of neighboring states, Delaware received the highest marks while Virginia and West Virginia scored lower than Maryland. Pennsylvania scored higher than Maryland for adequacy of revenues and lower for system management.

The DLS analysis also looked at the revenue splits in neighboring states. While Maryland brings in a high percentage from personal income taxes, corporate and other taxes are lower.

Pennsylvania depends more on corporate fees and federal funding and less on taxes, while Delaware depends heavily on gambling revenue, highway tolls and higher tuition at state colleges and universities.

While the comparisons are all well and good, said Thomas A. Firey, a senior policy analyst for the Maryland Public Policy Institute, they don't answer a fundamental question.

"It gives you a thumbnail sketch," Firey said, "but the better question is 'Are you truly being served by the money?'"

Some taxes, he said, take from the middle class only to give it back in another form such as tuition rates at state universities. Taxpayers, Firey said, should be able to spend the money themselves rather than through a governmental filter.

LOAD-DATE: July 25, 2003

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