By Barry Rascovar
Dec. 3, 2017 — Now that a massive trillion-dollar tax cut is a virtual certainty in Washington, Maryland officials must quickly figure out if the appropriate reaction is panic or relief.
The impact on budget-makers in Annapolis and in the counties is enormous. Since Maryland’s tax laws are coupled to rules for the federal income-tax collections, what happens on Capital Hill tax-wise reverberates almost immediately in Maryland.
But will it mean more state and local tax revenue or less? At the moment, there is no easy answer.
State legislators have little time to react, since they go into session for just 90 days starting Jan. 10. At this point, they have no hard data on a) what will be in the final bill that hurts or helps Maryland and its subdivisions, and b) what changes must be made immediately in state tax laws.
We do know many Marylanders could have their lives turned upside down.
People who spend large sums supporting themselves or family members in assisted living or nursing home facilities, or those with giant family medical expenses, no longer get to claim these payments as a tax offset under the House-passed version.
That could lead to hefty rises in tax bills for them, putting themselves and their loved ones in financial difficulty.
No more write-offs for state and local taxes. This adds to every Marylander’s tax burden. How will this affect the state’s tax receipts?Every analysis of the dueling House and Senate tax bills confirms that well-to-do Marylanders will reap huge tax savings, middle-class folks could receive either a small reduction in federal taxes or a larger tax bill from the IRS, and the lower class will see its tax bracket rise.
The rich get vastly richer, the poor get little if any help and the middle class get a relatively middling savings.
The “trickle-down” theory of economics is alive and flourishing in the Grand Old Party.
But how will this play out in government budgets in the Free State?
There will be far more uncertainty among Marylanders who joined the Obamacare program. Health-care insurance bills are likely to rise 10 percent or more each year under the GOP’s tax-cut bill. Potentially 13 million Americans could lose health care coverage.
That could reverberate in Maryland with hospitals bearing the brunt of thousands of newly uninsured citizens flooding emergency rooms with little or no money to pay for medical treatment.
More to Come
Meanwhile, Republicans are making no secret of their real targets: safety-net programs, especially Medicare, Medicaid and Social Security. Republican Sen. Marco Rubio admitted as much last Wednesday, stating the “next step” is going after these big-ticket federal programs.
Why? Because the GOP’s tax-cut bill saddles the nation with gigantic new deficits — $1.5 trillion over 10 years. Another federal law requires Congress to make budget cuts as an offset.
Additionally, economists say the tax-cut bill will spawn rapid increases in inflation, which has been virtually nil in recent years. Rising inflation dampens economic growth, which was the raison d’etre for the GOP tax cuts.
How will all this impact Maryland?
Will companies with major Maryland employment centers reward stockholders when the corporate tax rate is chopped nearly in half or will they reward workers? Will firms hire additional employees or use the tax savings to automate production facilities and cut back on employment?
These are the kinds of questions fiscal analysts in Annapolis and county seats had better get a handle on sooner rather than later.
Placing a Big Bet
The Republican tax cut has not been wildly popular with Americans, according to polls. They seem to grasp that the vast majority of financial benefits flow to those who already live comfortably or to corporations.
Yet the GOP is placing a gigantic bet on the party’s ability to persuade voters that the tax-cut bill is a win-win for everyone. The fate of Republican dominance in Congress could depend on voters’ sentiment toward the tax-cut measure likely to gain final approval by Christmas.
Meanwhile, Gov, Larry Hogan, county executives and legislators have to cope with the impact of these fiscal changes on state and local budgets now being put together.
Hogan already is planning to sell hundreds of millions of dollars of private-activity bonds before year’s end because the House bill eliminates these kinds of bonds — a move by Washington that could undercut all kinds of private-public partnerships like the Purple Line, affordable housing and student loans.
What other government funding programs are at risk?
When the Board of Revenue Estimates meets later this month, it could still be largely in the dark as to the ramifications of those taxing negotiations in Washington.
By the time the board meets again in March, far more will be known about the tax bill’s impact on states and localities. The board’s revenue revisions that month could prove pivotal in determining what immediate steps are necessary to adjust state tax policy.
Will the General Assembly have time in its 90-day session to make those adjustments? Will the governor fight or accept those changes?
Even in an election year, lawmakers might find themselves facing an extended session or a special session to grapple with the impact of the GOP tax bill on Maryland’s finances.