Regina Oldak: State’s outdated tax structure needs an overhaul

As a tax lawyer, I believe that what Maryland needs now is a comprehensive overhaul of our tax structure to address fiscal challenges in a way that spreads the burden fairly among us. We don’t need piecemeal change, with perhaps more loopholes and more work for those who make a living deciphering the tax code.

Former Gov. Robert L. Ehrlich Jr. dealt with fiscal challenges by raiding funds nominally dedicated to transportation and open space. Members of both parties in the General Assembly argue that Maryland needs slot machines to balance the budget. These approaches are shortsighted, and neither is in the best interests of our residents or our businesses.

There have been numerous media reports that a special session of the General Assembly may be called in September or October to address these serious budget issues before the legislature meets in its regular session in January. If there is a special session, the General Assembly would do well to consider the following:

*Maryland has four personal state income tax brackets, but the highest rate takes effect at taxable income over $3,000. This means that virtually everyone pays the same rate. This graduated rate structure was imposed in 1967. Then, $3,000 paid for a full year of college; now, it’s a monthly mortgage payment for some in Montgomery County. Yet Maryland’s state income tax still provides that everyone who earns over $3,000 per year pays tax at the same rate. This is, in effect, a flat tax, the most regressive form of income tax. The lower your income, the higher percentage you’ll pay in taxes.

*Corporate tax loopholes, including those allowing multi-state businesses to transfer profits earned in Maryland to subsidiaries in jurisdictions with lower, or no, income tax, should be eliminated. Comprehensive tax reform legislation should address the full range of income-shifting and tax avoidance practices.

*Most states rely heavily on sales tax as a source of revenue. According to the Maryland Budget and Tax Policy Institute, Maryland is one of just two states that derive more revenue from personal income taxes than any other type of tax. Maryland’s 5 percent retail sales tax rate is about average when compared to other states. But Maryland’s sales tax base is much narrower than other states. Our sales tax is based almost exclusively on the sale of tangible goods, excluding a wide range of services that are an increasingly significant part of our modern economy. Proposals to increase the sales tax rate or expand the number of services covered should be considered only as part of a broader analysis and discussion of Maryland’s tax system as a whole.

*Slot machines are not the panacea that they have been portrayed to be. They are a low road, temporary solution to Maryland’s budget woes that effectively ‘‘tax” many who can least afford it. Fairness demands that we spread tax increases across the socioeconomic spectrum in a progressive and ultimately more equitable tax structure.

The current fiscal situation in Maryland has been described as a crisis, but it is also an opportunity. The recent General Assembly session identified budgetary challenges to funding state and county priorities. We need expanded access to health care, more school funding and improved environmental protections.

These initiatives cost money. If we want to address critical needs in the years to come, we must first fix our outdated tax structure and put Maryland on a solid financial footing.

Naysayers like Blair Lee, opposing every change and every increase, undermine our ability to meet this goal. With taxes, as with anything else in life, you get what you pay for.

Regina Oldak of Bethesda is a Democratic activist in Montgomery County and a former assistant branch chief in the Internal Revenue Service’s Office of Chief Counsel. She was a candidate for the House of Delegates in District 16 in the 2006 primary.