Maryland’s $2.8 Billion Missed Opportunity

Closing Tax Loopholes Would Have Raised $2.8 billion from 2014 to 2018

An effective revenue system is an essential tool to enable Maryland to invest in the foundations of our economy such as education, health care, and transportation. Just as importantly, a fair tax system is essential to push back against the increasing concentration of wealth and power in a few hands. All Marylanders benefit when we have sufficient resources to invest in the basics, and these investments can be particularly important to break down the barriers—built through past and present policies—that hold back many Marylanders because of their race, gender, a disability, or another aspect of their identity.

Maryland’s current revenue system has significant shortcomings, but we can make it more effective and more equitable if we take a few steps to eliminate corporate loopholes, ineffective tax subsidies, and other special interest tax breaks.

As Marylanders’ needs grow and our revenue system falls further behind, it is vital that policymakers act swiftly. The fact is, we have already lost billions by failing to act sooner. If we had eliminated corporate loopholes, ineffective tax subsidies, and other special interest tax breaks, Maryland could have raised an additional $2.8 billion in revenue between fiscal years 2014 and 2018—years in which the lingering shadow of the Great Recession made it harder to invest in the things, like great public schools and accessible child care, that support a thriving community.[i]We now have a chance to avoid making the same mistake.

Past Missteps

Maryland state and local revenues fell sharply after the Great Recession. While the state did take some positive steps to protect essential services, these steps were not sufficient to prevent harmful cuts. If policymakers cleaned up our tax code, we could have avoided or eased service reductions that harmed communities across the state:

• Maryland made significant progress strengthening our investments in public schools in the early years of this century. Lawmakers set an ambitious standard for school funding in 2002, and by 2008 all but one of the state’s 24 school districts were funded at or close to that standard.[ii]But gradual funding cuts brought the number of well-funded districts to only six by 2015, nearly wiping out the gains made in the previous period. By that time, more than half of Black students in Maryland went to school in a district that was underfunded by 15 percent or more—a situation that as of 2017 was essentially unchanged. This underinvestment in public schools weakens Maryland’s economy in the long term and violates the state’s constitution to provide a quality education to every child.
• For multiple years, working parents in Maryland had less access to child care assistance than those in most other states. Nearly 3,200 children were eligible for subsidized child care but were put on a waiting list because of insufficient resources in mid-2015.[iii]That number increased to more than 4,300 by late 2017. During the same period, the state paid child care providers a monthly rate $325 below the federally recommended level, meaning that even parents who received assistance could choose from only a short list of providers who would accept the state’s rate. Thanks to significant increases in federal funding, the state has made major improvements in recent years—but better tax policies would have allowed us to do more, sooner.
• This is only a small sample of the services that were affected by ineffective tax policies amid a slow economic recovery. As of late 2017, legislative analysts estimated that state agencies were understaffed to the tune of about 2,500 workers.[iv]There simply were not enough hands to deliver a wide range of state services effectively.

Present Opportunities

If policymakers act now to clean up Maryland’s tax code, we can move onto a different path, strengthening the foundations of our economy and ensuring Maryland communities can thrive for decades to come. It is especially vital that lawmakers work to fix our tax code this year, as they consider major new investments in world-class public schools. These new investments have potential to build a brighter future for children across Maryland, and it is essential that we back them with sufficient resources rather than repeat our past mistakes.

Technical Appendix

[i]See Appendix for data sources and methodology. All revenue estimates are for all state funds.

[ii]MDCEP analysis of school funding adequacy data presented by the Department of Legislative Services to the Commission on Innovation and Excellence in Education.

[iii]2017 waiting list data from Maryland State Department of Education. Reimbursement rate data and 2015 waiting list data from Karen Schulman and Helen Blank, “Red Light Green Light: State Child Care Assistance Policies 2016, National Women’s Law Center, https://nwlc-ciw49tixgw5lbab.stackpathdns.com/wp-content/uploads/2016/10/NWLC-State-Child-Care-Assistance-Policies-2016-final.pdf

[iv]David Juppe et al., “Executive Branch Staffing Adequacy Study,” Department of Legislative Services, 2018, http://dls.maryland.gov/pubs/prod/TaxFiscalPlan/Executive-Branch-Staffing-Adequacy-Study.pdf