Building a More Progressive Tax System

For far too long Maryland lawmakers have implemented operating budgets that unfairly shortchange the needs of working and middle-class families in favor of the wealthy and corporations. The latter contribute massively to politicians’ electoral campaigns, and then lobby them intensely to secure corporate giveaways, unfair tax policies, and weak regulation. Maryland must reform our antiquated and grossly unfair fiscal structures and raise significant additional revenue to overcome the many challenges we face: lost jobs and tax revenue, a Chesapeake Bay in declining health, children schooled in trailers, commuters often trapped in gridlock traffic, and so on.

But lawmakers will only end the misguided economic policies of the past, reduce the burden on working families, and ensure sufficient revenue to fund the public services we all depend on, in response to massive grassroots pressure from Progressive Maryland supporters and allies on the following.

Combined Reporting and Closing Corporate Loopholes

Progressive Maryland has led the growing fight to crack down on corporate loopholes in our state and helped close the most notorious corporate loophole, The Delaware Holding Company Scam, bringing hundreds of millions more into the state coffers. But the only way to fully ensure the end to such corrupt practices is through “combined reporting,” a method by which the state ensures all of a corporation’s profits are properly recorded and taxed accordingly.

Combined reporting would add equity and levels the playing field for small businesses, which compete against national chains that pay no corporate income tax in Maryland. It requires multi-state corporations to add together all the profit from all their subsidiaries, calculate how much of it was generated in our state, and pay tax on that amount alone, just as Maryland-based businesses do. Already enacted in 23 of the 45 states with corporate incomes, it is the most effective means of countering complex tax avoidance schemes devised by corporate lawyers and accountants to hide profits in other states using tax shelters and subsidiaries, which they only create for tax avoidance purposes.

The Maryland Comptroller’s office has estimated that if combined reporting had been in effect in 2007, a typical year, the state would have collected $92 million to $144 million in additional tax, depending on the details of the specific reform proposal. In this fifth year of economic crisis, corporation profits have reached record high levels nationally while household incomes and consumer expenditures remain virtually stagnant. Progressive Maryland will rally all the support it can to make combined reporting the law in Maryland in the 2014 election-year session.

Abolishing other tax giveaways and breaks

Progressive Maryland continues efforts to end special tax giveaways and breaks that cost our state tens of millions each year. In 2013 modest progress was made in this direction with the passage of the Tax Credit Evaluation Act. We also collaborated with Fund Our Communities to kill a terrible provision of the Lockheed Martin tax exemption bill that would have required Montgomery County to reimburse the highly profitable giant military contractor $1.4 million in taxes it already paid for its private hotel facility in Bethesda. Unfortunately the General Assembly still mandated the county, overriding its own county council, to exempt the firm from its hotel tax at a loss of nearly a half-million dollars in badly needed revenue every year.

Past Progressive Taxation Accomplishments

The Millionaires’ Tax
In 2008 with heavy lobbying from Progressive Maryland and allies, the General Assembly enacted a three-year temporary tax increase on the highest-income households. The rate on income above $1 million a year for married and single filers became 6.25% – a mere 75 cents more for every $100 they make above one million dollars per year. The 5.5% rate that had applied to all income over $500,000 still applied to income between $500,000 and $1 million. The 0.75% increase was hardly noticeable, yet this measure alone typically brings Maryland, with the nation’s second highest number of millionaires per capita, $70 million to $90 million more in new revenues each year in effect, avoiding the equivalent in painful cuts. But timid legislators foolishly refused to reinstate it in the 2011, 2012 and 2013 sessions, despite our best efforts.

Civil Rights Tax Fairness
In 2013, Progressive Maryland supported this reform bill to passage, to restore the nontaxable status of noneconomic damages recovered in civil rights claims and allow Marylanders to subtract noneconomic damages from their federal adjusted gross income on their state tax returns. It does not change the taxation of back pay or other economic damages