WASHINGTON – Maryland collects less in taxes and fees than most other states relative to its economy, according to a study released Wednesday by the Maryland Budget and Tax Policy Institute.
“If we want to pay for services we want to have, we’re going to have to raise some money to pay for them,” said Henry Bogdan, public policy director of the Maryland Association of Nonprofit Organizations, which runs the institute.
Spending — for services such as tuition, health care and transportation — must be analyzed with respect to how much the state is collecting, said Bogdan.
To pay for unmet needs, it might be necessary to somehow change the revenue collection structure, he said.
Other states have raised the money they needed, said Bogdan.
“Maryland hasn’t, and now Maryland is looking at a structural deficit.”
A structural deficit occurs when the cost of ongoing expenses, such as commitments to pay for primary education, tuition, Medicaid and state agencies, are higher than the amount of recurring revenue generated yearly to support them.
It can be masked by having extra cash on hand, as it is now with the state running a $975 million surplus.
Maryland Comptroller Peter Franchot called for re-examination of the state tax structure to address long-term budget problems in his inaugural address.
To fix the structural deficit, there needs to be major budget reform, said Joseph Shapiro, Franchot’s spokesman.
“The existing tax structure has not kept up with the changing economy of the state,” said Shapiro. It is “still based on a past state economy based on manufacturing,” while the state economy now is more service- and knowledge-oriented.
Maryland historically taxes below the national average as a percentage of personal income, said Mahlon Straszheim, professor of economics as the University of Maryland, College Park.
Maryland experienced a 1 percent tax increase between 1979 and 2004, the report stated, the third least of 39 states that had growth in state and local tax collections.
The state “has been collecting what we have been 25, 27 years ago,” Bogdan said. “It would appear that Maryland could raise more money and not be out of line with other states.”
Maryland ranks 47th in terms of non-tax revenue collected locally, according to the study. This revenue includes college tuition, lottery proceeds and, in some jurisdictions, fees from solid waste removal.
The numbers indicate that the state could raise revenue and not be a high tax-collection state, said Bogdan.
A structural deficit comes and goes, and arises when the state enters a recession or commits to large expenditures, said Straszheim.
The way to address the issue, said Straszheim, is to either add revenue sources or reduce spending.
Proposed ways to increase revenue have been controversial, including allowing slot machines in racetracks, or increasing income taxes and the cigarette tax.
However, Straszheim says that overall, the state’s economy is doing well.
“The state of the Maryland economy is very strong,” said Straszheim, who added the state has experienced solid economic growth, including an estimated 1.5 percent increase in job growth this year. The state’s 2001 recession was also mild.
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