Searching for a pot of gold

Everyone is for tax reform as long as it doesn’t hit our own bank accounts too hard. For politicians, there’s the extra desire to offend as few interest groups as possible.

The ideal solution is to find a flush financial piñata that can be popped open without hurting ‘‘me” or ‘‘thee.”

As Long knew from experience, this is wishful thinking. Yet Maryland’s liberal Democrats keep telling us they have a nearly painless solution: Sock it to rich folks and corporations and all our budgets will be balanced without forcing the middle class and lower class to dig into their wallets.

Comptroller Peter Franchot and Sen. Paul Pinsky of University Park are incensed that nearly half of Maryland’s largest companies did not pay corporate income taxes in 2006. Outrageous! Let’s hit them with higher taxes!

Pinsky wants a law requiring ‘‘combined reporting” by corporations and Franchot wants to close corporate loopholes, such as captive real estate investment trusts. Yet the legislature’s own analysts say Pinsky’s idea would net, at most, $21 million, starting two years from now. Franchot’s crackdown on captive REITS could yield $13 million this year and $10 million next year.

To quote the Bard, those fiscal suggestions are ‘‘much ado about nothing.” We’re dealing with a nearly $2 billion general fund deficit and a transportation shortfall of $30 billion. Pointing an accusing finger at corporations won’t get Maryland out of its deep deficit hole, though it will serve a political purpose.

OK, then, let’s tax the rich! That will do it. O’Malley and other liberal Democrats denounce mega-millionaires across the country who pay nothing in taxes or high-wealth individuals who pay a top state personal income tax rate of only 4.75 percent in Maryland.

However, adding a 6 percent tax bracket for incomes over $150,000 for individuals and $225,000 for couples could yield less than $30 million — a mere drop in a sea of red ink. Other approaches might get that total up to $240 million — a small fraction of what’s needed.

This approach would put Maryland at a competitive disadvantage with neighboring states. That’s because of our local ‘‘piggyback” income tax, which tops out at 3.2 percent in Montgomery, Prince George’s and Howard counties.

Wealthy residents there would be paying a combined 9.2 percent in state and local income taxes versus roughly 3.6 percent in Pennsylvania and 5.74 percent in Virginia. Such a large differential could prompt an exodus of wealthy Marylanders across state lines. It also could scare away corporations looking to relocate to this region.

Well, let’s raise the sales tax by 1 percent, or $750 million. Oops, liberal Democrats don’t like this suggestion because it hurts the poor and middle class. So let’s instead expand the scope of the sales tax to services such as dry cleaning and car repair work. Let’s add legal, engineering, consulting and accounting services, too.

That might bring in $300 million in the first year and more than double that amount later. But the howls of protests from impacted groups will reverberate all over Annapolis. Lawmakers and the governor will be besieged by angry constituents and those hurt by such a tax expansion. The pressure to relent will be relentless.

How about a higher corporate tax rate? Not a bad idea except this hurts Maryland’s quest for jobs and corporate relocations and will give the state an ‘‘anti-business” reputation. It would raise less than $70 million a 1 percent increase.

What about upping Maryland’s ‘‘sin” taxes? A buck more on the tobacco tax brings in $200 million in year one but drops to $150 million later. Adding five or six cents to the liquor tax would add $100 million. It’s not nearly enough.

Slots legalization could raise $400 million or more — eventually. But in year one, O’Malley would be lucky to get slots sites licensed and operating soon enough to reap more than $50 million to $100 million.

Things are even bleaker on the transportation funding side. Raising the gasoline tax will generate waves of protests. Dedicating part of a sales tax increase to transportation would be a smart move but it diminishes the cash available to fill the general fund deficit.

There are no pain-free answers. There’s no way of avoiding months of searing criticism and disagreements.

The lack of open dialogue with legislators this summer has been a major misstep. O’Malley needs to pass a tax package this fall so it can be implemented Jan. 1. Otherwise, he’s got to raise far more tax dollars in the next regular session of the legislature.

It will take time to hammer out a plan with broad consensus that can be sold to constituents. House Speaker Mike Busch and Senate President Mike Miller have sharply divergent views. Geographic and demographic disputes could splinter the Democratic majority.

Yet something must be done. Maryland’s fiscal cupboard is bare. Revenue receipts are slowing. The taxman cometh. All that’s left is for O’Malley to figure out how to get the job done.

Barry Rascovar is a communications consultant in the Baltimore area. His Wednesday morning commentaries can be heard on WYPR, 88.1 FM. His e-mail address is brascovar@hotmail.com.