MoCo State Legislators on the Millionaire Tax

Preserved for eternity, here are the published comments and the votes by state legislators from Montgomery County (as well as remarks by the County Executive and County Council President) on whether a surcharge for millionaires should replace the computer services tax. Whether you agree with David Lublin or with me, the millionaire tax emerged as a major philosophical dividing line in the county delegation.

Delegate Charles Barkley (D-39), who voted against the millionaire tax, from the Post:

"You can only hit a cash cow so many times before they say, 'We're going to take our milk somewhere else,'" said Del. Charles E. Barkley (D-Montgomery).

Delegate Kumar Barve, the House Majority Leader (D-17), who voted for the millionaire tax, from the Post:

House Majority Leader Kumar P. Barve (D-Montgomery) defended the repeal bill, modeled on an O'Malley plan, as "a balanced compromise" that would eliminate the computer services tax before it is scheduled to take effect July 1.

"You will be preserving the place of Maryland in the high-tech sweepstakes," Barve said. "I urge you to kill this thing, right here, right now."

Delegate Brian Feldman (D-15), who voted against the millionaire tax, from the Sun:

"A majority of the Montgomery County delegation have a lot of concerns," said Feldman, who said he hopes lawmakers will consider making deeper cuts in O'Malley's spending programs before raising taxes.

"Maybe this isn't the time for new initiatives," he said.

Senator Jennie Forehand (D-17), who voted for the millionaire tax, from the Gazette:

But repealing the tax is a no-brainer to prevent computer firms from leaving the state, said Sen. Jennie M. Forehand (D-Dist. 17) of Rockville.

"Some of the things we passed in November has a negative impact in the counties and put them in a negative situation," she said. "Unlike the millionaires who are well-grounded and are making their money in the state, they won’t leave. But tech companies who would have been affected by this tax could easily have uprooted their businesses and moved."

Delegate Bill Frick (D-16), who voted against the millionaire tax, from Maryland Moment:

Del. C. William Frick (D-Montgomery), a member of the Ways and Means Committee, said he is "disinclined to change the income tax brackets."

"We worked hard on them and reached what we think is an appropriate compromise in the special session," Frick said.

Senator Brian Frosh (D-16), who voted for the millionaire tax, from the Post:

Sen. Brian E. Frosh (D-Montgomery) said he thinks lawmakers should step back and consider whether raising the tax rate is good public policy, irrespective of the consequences for his county.

"I understand that people say it would hit Montgomery County harder than some other jurisdictions, but we don't get taxed by jurisdiction," Frosh said. "I don't perceive it as a geographic issue."

Delegate Hank Heller (D-19), who voted for the millionaire tax, from the Gazette:

"I don’t think we have to apologize" for fighting higher taxes, said Del. Henry B. Heller (D-Dist. 19) of Leisure World. "Montgomery County, instead of [being] a major decision-maker ... will end up either being the obstructionists or having to go along with it."

The so-called "millionaires tax" will cause Montgomery residents to move across the Potomac River to Northern Virginia, weakening the economy, Heller said.

Delegate Tom Hucker (D-20), who voted for the millionaire tax, from the Post:

"I have to represent all my constituents, not just the millionaires," said Del. Tom Hucker (D-Montgomery). "I think those folks can afford to pay more state income taxes, especially in the wake of enormous federal income tax cuts that they have benefited from for the last six years."

Senator Nancy King (D-39), who voted for the millionaire tax, from the Sun:

…Montgomery County Democratic Sen. Nancy J. King, said she would reluctantly opt for an income tax increase, "If I had to."

Montgomery County Council President Mike Knapp from the Gazette:

The tech tax repeal will burden Montgomery County residents unfairly, said County Council President Michael J. Knapp (D-Dist. 2) of Germantown.

Of the state’s 6,150 millionaires, 41 percent live in Montgomery County; Baltimore County has the next highest number.

"Montgomery County is solving a statewide problem — again," Knapp told reporters in Rockville on Monday.

Senator Rona Kramer (D-14), who voted against the millionaire tax, from Maryland Moment:

Sen. Rona E. Kramer (D-Montgomery), who chairs the county's Senate delegation, said she wants the computer services tax repealed, but would prefer cuts in transportation spending than changes in the income tax structure.

"Montgomery County already does the yeoman's share of supporting the state budget," she said. "It's absolutely inappropriate for one jurisdiction, Montgomery County, to pick up the tab for 50 percent of one tax."

And from the Sun:

"I would not support it," Sen. Rona Kramer, a Montgomery County Democrat on the budget committee, said yesterday.

O'Malley's proposal is a political mistake, she said.

"He's coming to the one jurisdiction where he's still popular and saying: 'We're going to make you compromise again,'" Kramer said. "It's going to make him look terrible."

Montgomery County Executive Ike Leggett from the Post:

Leggett said he favors a repeal, partly because the planned tax significantly affects the thriving technology industry in the Washington suburbs. Leggett said, however, that he opposes raising the top personal income tax rate because a large number of wealthy Marylanders live in Montgomery and that he is wary of cuts to transportation funding.

"I want to be supportive of resolving this, certainly as it relates to this computer tax, but Montgomery County cannot be the sole source of solving a statewide problem," he said.

Senator Richard Madaleno (D-18), who voted against the millionaire tax, from the Post:

Sen. Richard S. Madaleno Jr. (D-Montgomery) acknowledged that the number of those who would be affected by the millionaires’ tax is small. "But this is a class of people who generate a lot of tax revenue for Maryland and Montgomery County," Madaleno said. "To create a disincentive for them to stay would be damaging to the rest of us."

And again from the Post:

"Opponents of this tax are not going to characterize it as a millionaires tax," said Sen. Richard S. Madaleno Jr. (D-Montgomery), a member of the budget committee. "It's going to be just another tax increase. . . . This is just more fodder for conservative talk radio."

Madaleno echoed arguments by other Montgomery officials, who have suggested that a higher income tax rate could prompt people who are creating jobs in the county to move. He suggested making cuts in transportation funding to repeal the tech tax.

Madaleno also questioned the political consequences in his county of the governor's support for the millionaires tax.

"I think it could be damaging to O'Malley in the part of the state where he probably remains the strongest," Madaleno said.

Madaleno posted an essay on this topic and others on Free State Politics.

Delegate Craig Rice (D-15), who voted against the millionaire tax, from the Sun:

"This is another ill-fated Senate move," said Rice of the Senate bill, which he criticized for not replacing the computer tax with a long-term revenue source. "We need to move forward with taxing other services."

By an 8-12 vote, [House Ways and Means] committee members also rejected a proposal from Rice that would have cut $150 million from transportation projects but eliminated the tax on millionaires.

And from the Gazette:

"I think Montgomery County has work to do," said Rice (D-Dist. 15) of Germantown. "I think as a delegation, we have got to do a better job at standing together on these things. We should not be balancing tax policy on one class of people."

Delegate Luiz Simmons (D-17), who voted against the millionaire tax, from Maryland Moment:

Del. Luiz R.S. Simmons (D-Montgomery) said he is frustrated to see his county become the "last refuge of unimaginative people" during budget crises.

"The tax is always imposed on us," Simmons said, adding that he thinks state leaders perceive Montgomery as a land of wealthy suburbs that is immune to the social ills that require government spending. But he said much of the county is middle-class and struggling during the economic downturn.

"I'm not trying to give you gobbledygook, but if you take a cumulative effect of these tax increases, what you will get is a migration of people out of the county," Simmons said.

"It has nothing to do with defending the millionaires," he added. "I'm not a millionaire. I'm just concerned about us taking hits on many different fronts and the confluence of those is going to hobble our economy."

Delegate Herman Taylor (D-14), who voted for the millionaire tax, from the Gazette:

"You’re exchanging one for the other," Del. Herman L. Taylor Jr. (D-Dist. 14) of Ashton said of the new income tax bracket. "I don’t know if that’s a good compromise. Just like the computer tax, we’re going to have to wait and see. Instead of hitting millionaires’ businesses, we hit millionaires directly."

Delegate Jeff Waldstreicher (D-18), who voted against the millionaire tax, from the Gazette:

"The question is how do we replace those revenues in a way that is true to our progressive values and fair to Montgomery County," said Del. Jeffrey D. Waldstreicher (D-Dist. 18) of Kensington.

And here is Senate President Mike Miller’s assessment from the Sun:

Senate President Thomas V. Mike Miller said lawmakers from Montgomery County held the key to breaking the deadlock, noting that they were the most adamant opponents of both the "tech tax" and the proposed levy on those earning more than $1 million annually. He said the county also receives the most in state transportation funding, leaving its representatives reluctant to redirect that money.

The county "is in the eye of the storm," he said.

That it is, Mr. Miller. That it is.

The final vote tally among Montgomery County’s state legislators is:

For replacing the computer tax with a surcharge on people making $1 million a year or more:

Senator Brian Frosh (D-16)
Senator Rob Garagiola (D-15)
Senator Nancy King (D-39)
Senator Mike Lenett (D-19)
Senator Jamie Raskin (D-20)
Delegate Saqib Ali (D-39)
Delegate Kumar Barve (D-17)
Delegate Bill Bronrott (D-16)
Delegate James Gilchrist (D-17)
Delegate Hank Heller (D-19)
Delegate Sheila Hixson (D-20)
Delegate Tom Hucker (D-20)
Delegate Anne Kaiser (D-14)
Delegate Susan Lee (D-16)
Delegate Roger Manno (D-19)
Delegate Heather Mizeur (D-20)
Delegate Karen Montgomery (D-14)
Delegate Kirill Reznik (D-39)
Delegate Herman Taylor (D-14)

Against replacing the computer tax with a surcharge on people making $1 million a year or more:

Senator Rona Kramer (D-14)
Senator Rich Madaleno (D-18)
Delegate Charles Barkley (D-39)
Delegate Al Carr (D-18)
Delegate Kathleen Dumais (D-15)
Delegate Brian Feldman (D-15)
Delegate Bill Frick (D-16)
Delegate Ana Sol Gutierrez (D-18)
Delegate Ben Kramer (D-19)
Delegate Craig Rice (D-15)
Delegate Luiz Simmons (D-17)
Delegate Jeff Waldstreicher (D-18)

Computer Tax at Death's Door

Yesterday the Senate's Budget and Taxation Committee voted to replace the computer tax with a package combining a surcharge on residents earning at least $1 million a year, transportation cuts and budget cuts. The Post and the Sun have the details. The package is very close to the Governor's proposal and so these predictions may be coming true.

In Defense of Taxing Millionaires

The current battle over whether to replace the hated computer services tax with an income tax surcharge on millionaires has become a defining ideological struggle among Maryland state legislators, especially those from Montgomery County. Many MoCo Democrats, including a few really good ones, argue that millionaires pay enough. Today I take up the banner for the rest of us.

The best case for the other side has been presented by David Lublin, founder and owner of this blog. His central arguments are budgetary and geographic. David points out that millionaires pay a lot of taxes. He does not want them to move out because if they do it will hurt our capacity to fund programs we need. He also describes both the computer tax and the millionaire surcharge as targeting MoCo because both affect lots of people who live in the county. “You're replacing one tax which targets Montgomery County with another that does exactly the same,” he writes.

David’s argument is logical and pragmatic, and I respect it. But a millionaire surcharge is a worthy alternative to the computer tax for three reasons.

First, let’s examine how people who earn a million dollars in a year get their money. I will bet that the majority of them do not earn a million dollars every single year. Rather, many of them will earn in the mid-to-upper-six digits in most years but then obtain an occasional spike. That spike may be from a payout in a lucrative lawsuit settlement, a capital gain or an inheritance. Would people in this category really move out of the state because they had to pay a couple extra thousand dollars in a year when they got lucky?

As for the super-rich, those who do earn a million dollars in every single year, they already can park their compensation in tax-deferred vehicles like 1031 exchanges or establish part-year residency in no-income-tax states like Florida and Nevada.

The Washington Post reports that 6,150 Maryland residents reported at least one million dollars in income in 2005 and 2,535 lived in MoCo. How many of those residents earned a million dollars in every single year over the last five years and would therefore be really tempted to move? Possibly several hundred, but only the Comptroller’s office would know for sure. Are these several hundred people really worth the colossal amount of political capital that MoCo’s state legislators are expending on their behalf?

Second, anyone who believes that the economic well-being of our county is a linear function of the number of millionaires who live here does not understand the source of our prosperity. Montgomery County’s vitality comes from its excellent schools, the entrepreneurialism of its small businesses (including those in the tech sector), its highly-educated and diverse population, its attractive neighborhoods and, of course, federal spending. Millionaires live here for those reasons just like the rest of us do. If tax rates were the sole determinant of their residency, they would all have moved to Virginia long ago.

Third, Maryland’s working and middle classes have already paid their share. Just last fall the legislature’s special session passed a regressive tax package. Last October, I calculated that the Governor’s original $1.7 billion proposal derived 61% of its revenues from regressive sources like the sales tax hike. The package that was ultimately passed was worse. The Maryland Budget and Policy Institute analyzed the session’s product and found:

The poorest 1/5 of taxpayers will pay nearly 0.8% more of their income in taxes. The middle 1/5 will pay half that percentage: just over 0.4%. The wealthiest 1/5 will pay between 0.3% and 0.5% of their incomes in increased taxes. This overall regressive distribution occurs because the regressive nature of the sales tax increase overwhelms the progressive features of the income tax changes.

Now I am not opposing all regressive taxes. The cigarette tax, for example, saves lives. The gas tax encourages mass transit use and fuel efficiency. But when a billion-dollar-plus tax package is comprised primarily of regressive measures, that sends a message about the legislature’s priorities. And the principal reason for relying on regressive taxes like the sales tax was the desire by some legislators – including some from MoCo – to limit income tax increases for the rich. Now some of these legislators are talking about cutting transportation funding as an alternative to the surcharge.

Isn’t relieving traffic congestion also a high priority for this county? If the rest of MoCo’s residents sit in gridlock to protect the rich from paying more taxes, isn’t that an example of replacing one measure that targets Montgomery with another, as David says? MoCo Democrats rightly criticized Governor Ehrlich when he diverted transportation funding to avoid raising taxes. And we should not forget how Virginia has suffered for its inability to finance its transportation infrastructure.

Furthermore, let’s recall the unholy moment in which the computer tax was spawned. The creature was conjured from the abyss by the Maryland Senate for the sole purpose of not raising taxes on millionaires to the extent that the Governor originally recommended. Interestingly, no member of the Senate’s Budget and Taxation Committee will admit to fathering the wailing beast in whatever dark corner of the Senate chamber such acts are usually committed. If the Senate had adopted the Governor’s admittedly imperfect proposal, we would never have the computer tax or the current row over the millionaire surcharge.

I once blamed Senate President Mike Miller for the computer tax and the regressive special session tax package, but he proved me wrong. Back in January, I reported the following from our now-legendary blogger interview with him:

Regular readers will recall how I criticized the Senate President for the regressive character of the special session tax package. Leaping into the jaws of the lion, I asked him the following question:

“The tax package that was passed by the special session collected the majority of its revenues from raising the regressive sales tax. If you could have that one back and do it over, would you have taxed the rich a bit more to give the working people a break?”

Miller did not back down from the sales tax. He described it as “the most regressive but also the most acceptable” of the taxes, claiming that he received little protest on it. “But I wish I could have had more from the income tax.” Miller noted, accurately, that part of the Montgomery County delegation, backed by their County Executive, pushed back against the Governor’s rate increase for the top income tax brackets, thereby limiting the legislature’s ability to raise them. “You need 24 votes to pass something through the Senate and I didn’t have the votes to spare!”

And so Mike Miller is actually to the left of a good part of the MoCo statehouse delegation on this issue. That’s right readers, print those bumper stickers: MIKE MILLER: TOO LIBERAL FOR MOCO.

NoCo and the Computer Tax: BFF

So you’ve never heard of NoCo and BFF and don’t understand how they relate to the computer tax? Read on!

The Washington Post is reporting that Governor O’Malley is floating a deal to get rid of the much-hated computer services tax. He proposes to replace its revenue with three sources: a surcharge on millionaires increasing their income tax rate to 6.25% from 5.5%, “diversion” of transportation funds and more budget cuts. Senator Verna Jones (D44 – Baltimore City) proposed to pay for repeal through a high-earner surcharge alone, but the Governor would like to rely on multiple sources instead.

Why is the Governor treading so carefully with the rich? Why, it’s because of our politicians in Montgomery County!

Here is County Executive Ike Leggett’s reaction to the Governor’s plan:

Leggett said he favors a repeal, partly because the planned tax significantly affects the thriving technology industry in the Washington suburbs. Leggett said, however, that he opposes raising the top personal income tax rate because a large number of wealthy Marylanders live in Montgomery and that he is wary of cuts to transportation funding.

"I want to be supportive of resolving this, certainly as it relates to this computer tax, but Montgomery County cannot be the sole source of solving a statewide problem," he said.

Even blogger hero Senator Madaleno was lukewarm:

Sen. Richard S. Madaleno Jr. (D-Montgomery) acknowledged that the number of those who would be affected by the millionaires' tax is small. "But this is a class of people who generate a lot of tax revenue for Maryland and Montgomery County," Madaleno said. "To create a disincentive for them to stay would be damaging to the rest of us."

Senator Brian Frosh and Delegate Tom Hucker were more accepting of the surcharge, but there are enough MoCo legislators who agree with the County Executive that the delegation has become a significant hurdle to repeal. Many MoCo legislators don’t want the computer services tax. And they don’t want a millionaire surcharge. And they don’t want transportation cuts. That is why, by the power vested in me as the author of this blog post, I am officially changing the nickname of our county from MoCo to NoCo.

Now there are alternatives and I laid one out a couple weeks ago. An extra point hike in the corporate tax rate, combined reporting and installation of the Governor’s original upper income tax rates would pay for the computer tax repeal. And the first two components would spread the pain more evenly across the entire state than a straight surcharge. Plus, all three components are progressive taxes and would partially mitigate the special session’s overwhelmingly regressive tax package.

But if NoCo politicians do not offer an alternative soon – whether it looks like mine or not – we all know what is going to happen. The Governor will make a deal with the General Assembly leaders and the delegations from Baltimore City, Baltimore County and Prince George’s County. Some variant of his proposal will pass because the pressure to repeal the computer tax is reaching a fever pitch. And guess where the diverted transportation money will not be going? You guessed right: some project in NoCo will have to wait a few more years. And who is going to be shedding tears for us in other parts of the state? You guessed it: absolutely no one.

And what if NoCo’s politicians successfully resist repeal? NoCo and the computer tax: Best Friends Forever. And there you have the title to this post.

Is the Computer Tax Here to Stay? (Updated)

The Washington Post reports that Maryland’s Senate has not reached a consensus on how, or whether, to replace the much-despised computer sales tax. But Maryland Politics Watch readers have seen this coming.

Remember the now-legendary blogger interview of Senate President Mike Miller back in January? When we asked him about the computer tax, the Senate President answered, "The computer tax is not a good tax, but it’s $200 million and I’m going to fight to keep it... No one can agree on a replacement." And here’s our report on House Majority Leader Kumar Barve's comments:

"The House got rid of the computer sales tax but it came back. It’s bad public policy. It’s unwise to tax businesses that are mobile," Barve stated. "But unless we’re willing to find $200 million in extra revenues, it will be very difficult to get rid of." And why was the computer industry vulnerable? "In politics, when something unpleasant has to be done, it’s usually done to whoever squirms around the least!" Barve noted that Senator Rob Garagiola (D-15, MoCo) had a proposal to replace it with a gas tax, "but that is a non-starter." Added to Mike Miller’s comments, Barve’s opinion indicates that the computer tax is not going anywhere because there is no other way to raise the money.

Mr. Miller’s and Mr. Barve’s political predictions have been proven correct. When the Republicans proposed spending cuts and tapping "unallocated funds" to pay for a repeal, the Senate rejected it. When Senate Democrats proposed an income tax surcharge on the rich, Montgomery County officials opposed it. Time is running out: the current session has less than a month left and the computer tax is due to take effect this summer.

The tragedy is that it didn’t have to be this way. Governor O’Malley never proposed this tax. The House of Delegates did not propose it. And there were other ways to raise the money. An extra point hike in the corporate income tax could have raised at least $100 million and Maryland’s rate would still have been lower than Pennsylvania and D.C., equal to New Jersey and barely higher than West Virginia and Delaware. Combined reporting on corporate income taxes could have raised $25 million. Progressive Maryland believes it could have been worth $100 million. The legislature could have kept the Governor’s original higher income tax rates on individuals making $150,000, raising perhaps tens of millions more. And the legislature could have aggressively gone after tax-cheating employers but so far has not done so.

Instead, we are left with a looming, devastating tax on a knowledge-based industry critical to the state’s future. Everyone hates it. But no one has figured out how to get rid of it. Surely the Democrats in Annapolis can do better than this.

Update: The Sun reports that a surtax on millionaires is gaining ground. Democratic Senator Verna Jones's (D44-Baltimore City) proposal would raise $230 million by instituting a surcharge rate of 6% on incomes between $750,000 and $1 million and 6.5% on incomes above $1 million. But Montgomery County Executive Ike Leggett has written in opposition to the plan.

Update 2: The Governor has come out in favor of replacing the computer tax with the surcharge. However, Democratic Senator Robert Zirkin (D11-Baltimore County) has proposed to repeal the computer tax if the slots referendum passes. He also favors cutting transportation projects.

Senator Zirkin, I know my Montgomery County delegation is split on taxing the wealthy. But I would hope that all of them would stick together on opposing transportation cuts. All they hear is how horrible traffic congestion is from both their constituents and our County Council. Good luck in getting our eight State Senators to cut State Highway and transit projects in our county.