Tax Day: Our Shared Investments in Maryland
What kind of state do you want Maryland to be? For most of us, the answer is straightforward. We want to live in safe neighborhoods with reliable roads and amenities like well-maintained parks. We want to send our kids to first-rate schools. We want to have healthy neighbors and access to great hospitals. These building blocks of a strong community are made possible by our tax dollars. As Tax Day rolls around, let’s take a look at the shared investments our taxes support and some options for making our tax system better.
Maryland Tax Basics
On average, Marylanders pay 10.4 percent of our income in state and local taxes. Compared to other states, we’re near the middle of the pack with residents in 15 states plus the District of Columbia paying more than we do as a share of personal income. This puts Maryland close to the national average.
However, we don’t ask the same commitment from all Marylanders. Our tax system is upside-down, asking the least of those who can most afford to pay. Maryland families with incomes below $111,000—about 80 percent of the state—pay between 9.5 percent and 10.3 percent of their income in state and local taxes. The top 1 percent, earning at least $481,000, pay only 6.7 percent of their income in taxes. African-American and Hispanic-headed families also tend to pay more in taxes than their white counterparts, because they are more likely to have lower incomes. A fairer tax system would ask Marylanders of all races and ethnicities—and particularly the wealthiest among us—to pay their fair share.
A Healthy Tax System Is Essential to a Thriving Economy
Our taxes support a wide range of investments that strengthen our economy and help make Maryland a great place to live. Most of these investments fall into a few categories:
- Health: Nearly one-third of the state operating budget supports investments in Marylanders’ health. This includes health insurance for kids and people with disabilities, support for hospitals, and efforts to combat infectious diseases. A healthy population is a prerequisite for a healthy economy.
- Education: Another third of the state operating budget goes toward K–12 and higher education, plus $756 million in the capital budget. More than 850,000 children attend Maryland’s public elementary and secondary schools, which receive nearly half of their funding from the state. Once they graduate, we continue to invest in these students’ futures through apprenticeship programs, community colleges, public universities, and financial aid. A well-educated workforce is the most effective way a state can support a healthy business climate.
- Transportation: The state operating budget includes more than $5 billion in transportation funding, plus $2.7 billion in the capital budget. This money is used to build and maintain our highways, support modern transit systems, and run our ports and airports. Reliable transportation is essential for people to get to work and for goods to get to market.
- Investments in public safety, the environment, human services, and general government account for the remaining 23 percent of the state budget. Our future prosperity depends on ensuring families can meet their basic needs, our government runs efficiently, and our neighborhoods are safe.
We Should Take Steps to Improve our Tax System
Taxes are an essential part of Maryland’s success as a state. At the same time, our tax system has two important shortcomings right now: It’s upside-down, allowing many of the wealthiest and most powerful among us to get out of paying their fair share. It’s also inadequate, not providing enough resources to meet our most important needs as a state. With a few fixes, we can make progress on both of these problems:
- We should clean up the tax code by getting rid of special tax breaks like corporate “nowhere income” and the carried interest loophole for investment managers, and freezing the series of planned annual cuts to our multi-millionaire estate tax. These tax breaks cost upward of $100 million each year and do nothing to strengthen our economy.
- We should modernize the way we collect sales taxes to reflect the increasing importance of online commerce to our economy. This single step could bring in hundreds of millions of dollars in revenue that is legally already owed to the state.
- We should expand the Earned Income Tax Credit. While many of the wealthiest among us are not paying their fair share, sales and payroll taxes can make it harder for low-wage workers to make ends meet. The Earned Income Tax Credit makes a real difference in these workers’ lives, and making it available to workers not raising children would help even more.