Maryland’s budget problems worsened Thursday with tax receipts failing to hit estimates for the fifth consecutive time since the pandemic ended. The news quickly ratcheted up the rhetoric among Democrats, who are divided on whether now is the time to raise taxes.
Democrats, who have controlled the State House for decades and usually deploy a united front, are ensnared in a behind-the-scenes fight over how to pay for policies that are driving multibillion-dollar deficit projections not seen since the Great Recession.
The latest bad news comes from lackluster income tax receipts, which are now expected to bring in $255 million less than projected over the current and incoming fiscal years, state economic forecasters said Thursday. Tax collectors are seeing less money withheld from Maryland residents’ paychecks than anticipated over the past three quarters, despite record-low unemployment, which suggests a strong labor market.
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The adjustment, along with other developments, means the budget Gov. Wes Moore (D) introduced in January needs more than $500 million in extra cash to balance it. The Senate Budget and Taxation Committee is scheduled to vote Friday on its plan to balance the budget.
Members of the Board of Revenue Estimates could not explain Thursday why seemingly positive economic data was not translating into tax revenue for the state.
“To be clear, we don’t know for sure,” Robert J. Rehrmann, executive secretary to the Board of Revenue Estimates, told lawmakers at a briefing. “We’re still having shocks from the pandemic.”
The increasing scarcity of resources triggered a round of public posturing among Democrats, who are haggling over when to raise taxes to pay for the looming expenses of an education program, climate change efforts and transportation projects.
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Together, those initiatives are projected to leave Maryland with a roughly $3.4 billion shortfall three years from now, legislative analysts calculated. That figure is expected to widen to $4 billion the following year.
Democrats passed these programs without a long-term plan to pay for them, and then the programs got more expensive at the same time that stagnant growth delivered less revenue than expected.
Democrats in the House of Delegates, with Speaker Adrienne Jones (D-Baltimore) looking on, on Thursday issued their most forceful public declaration yet that “it’s time that we get to work” on solving the problem of paying for promises made to residents.
“For too long around here, the phrase ‘fiscal responsibility’ has been used to justify taking cuts. More recently, it has been used to not address a looming issue, seemingly out of fear,” House Ways and Means Committee Chair Vanessa E. Atterbeary (D-Howard) read from a prepared statement at the conclusion of a fiscal briefing.
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“Our fiscal responsibility is to the people served by these programs just as much as it is to saving the state money. It is not fiscally responsible to balance the budget by cutting programs to the state workforce, low-income working families and, especially, to our children,” she said.
Some House Democrats have criticized Moore for proposing a co-pay for a free child-care program that has exploded in popularity. Moore put an additional $270 million into the subsidy but required that some families contribute up to 7 percent of their incomes to help cover the costs. Del. Stephanie Smith (D-Baltimore City) has called it a tax on working families.
Maryland Democrats last carried out wholesale tax increases under Democratic Gov. Martin O’Malley to plug large budget holes partly caused by the Great Recession. In 2014, Republican Larry Hogan rode a wave of discontent over those tax increases to an upset victory in the governor’s race.
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Democratic leaders of large counties, including Montgomery, Anne Arundel and Frederick, have urged the legislature to raise taxes now before the problems worsen, advocating for a $1.6 billion package that would increase taxes on the wealthy and corporations while cutting them for middle- and lower-income earners.
Moore and leaders in the Maryland Senate have resisted calls to reshape the tax code before the legislature adjourns April 8, saying the economy needs to grow first.
“I just do not believe right now that raising taxes is something we have to do,” Moore said in an interview last week. “I have not seen anything yet in, in the way that the budget has rolled out that would move me from that position.”
His spokesman, Carter Elliott IV, reiterated it in a statement Thursday after the revenue news was released: “Any conversation with the General Assembly around taxes is going to have a very high bar for the governor, and any of those conversations will focus on creating fiscally disciplined ways of making Maryland’s economy grow.”
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The General Assembly has the power to increase taxes, and the governor has authority to approve them, veto them or let them go into law without his signature.
Senate Budget Committee Chair Guy Guzzone (D-Howard) echoed the point in an interview Thursday.
“We all know about the obvious, right? This is no secret,” he said, referring to the multibillion-dollar deficit projections. “We are moving in, I think, a prudent, thoughtful way to get to the next day.”
The debate has begun to winnow to a question of when — not if — the state needs more money.
“There are ways to deal with it other than revenues, right?” Guzzone said. “You could turn back on the way you feel about some of these issues, right? Or you could slow the pace of how those issues are rolled out financially. But at the end of the day, it seems very likely that we’re going to have to do something.”
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“In particular with regard to education, we’ve made this commitment, and I think the legislature’s leadership is all intent on living up to the commitment here,” he said.
Republicans argued now is not the time to raise taxes.
“There are many questions surrounding Maryland’s economy at this moment,” House Minority Leader Jason C. Buckel (R-Allegany) said in a statement. “What we do know is that revenues indicating the health of Marylanders’ wallets — both sales and personal income taxes — are down. Families have less income and less money to spend. This is something the House of Delegates must be aware of as our Democratic colleagues seem hellbent on increasing Marylanders’ tax burden.”
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