Please ensure Javascript is enabled for purposes of website accessibility
Maryland State Senator Steve Hershey on the phone in the Senate Chamber during Sine Die 2015. (The Daily Record / Maximilian Franz)

Md. business climate commission considers tax cuts — and increases

ANNAPOLIS — A commission charged with making Maryland more business-friendly by recommending tax cuts is also considering increases to three controversial taxes.

The proposed increases to the state’s gas, tobacco and alcohol taxes are among the options weighed by the commission as well as reductions to some personal income tax rates and speeding up the rate at which Maryland re-couples its estate tax with the lower federal rate.

Interviews with multiple members of the 25-person commission and an examination of documents shown to The Daily Record confirm that the group has also discussed increases to the gas, tobacco and alcohol taxes with the revenue being earmarked ostensibly for programs that some say will help businesses. And while there seems to be little appetite regarding making tax increases part of any recommendations by the Maryland Economic Development and Business Climate Commission, the topics could be presented as talking points for resolving transportation and job-training issues.

Norman Augustine, who chairs the panel that has come to be known as the Augustine Commission, is currently writing a preliminary draft of a report that he said last Monday would be emailed to members. Augustine declined to provide specifics about the exact number of recommendations or many of the details following the commission’s meeting last week. He was not available for an interview for this story.

“These are substantive and they are actionable,” Augustine said following the seven-hour meeting last week. “We’ve gone through a whole list of options we’ve been considering and narrowed that list down to a number of items, 12 or so.”

“While our role is to address business climate in Maryland, the business climate is affected by taxes that are not directly on businesses,” Augustine said. “We’ve addressed taxes in general.”

A review by The Daily Record of a document provided to the 23 members of the commission present at the Nov. 30 meeting reveals that the group is examining both targeted tax cuts and increases.

Included on the list of tax cuts being considered as Augustine drafts a preliminary draft of the group’s final report include:

  • Cuts to the top marginal personal income tax rates — the rate most likely to affect small businesses.
  • Increasing the speed in which Maryland’s estate tax exemption is increased to match the federal exemption. The change was passed in 2014 and will be fully implemented in 2019 and could reduce state revenue by an estimated $140 million.
  • Tax-free repatriation of profits held overseas.
  • Tax cuts for so-called pass-through entities.
  • Moving Maryland to a one-factor corporate tax structure based on the proportion of sales attributed to Maryland. Currently, the state uses a three-factor approach that also takes into account property and payroll taxes, which some say unfairly penalizes businesses who are headquartered in the state.

As far as possible increases:

  • A proposed 10-cent gas tax increase to address transportation needs. Economists at Moody’s Analytics told the panel earlier this year that improvements are needed to address the state’s transportation infrastructure including improvements to the port system in Baltimore. The state last raised the fuel tax in 2013 which automatically increases the rate annually based on inflation. Hogan attempted to repeal the automatic increases in a bill that died in the legislature earlier this year.
  • A possible increase in the excise tax on alcohol from the current 9 percent, which was passed in 2011, to 12 percent. The additional money would be earmarked for a venture capital fund managed by the state.
  • Boosting the per-pack cigarette tax by $1 and earmarking the money for work force development programs, possibly at community colleges. The General Assembly approved a $1 per pack increase during a special session in 2007.

“I don’t think there was any nexus between the tax and how it would be spent. That’s why I didn’t take it as a serious proposal,” said Sen. Steve Hershey, R-Upper Eastern Shore. “There were issues that were talked about that (Augustine) put on the table because some wanted to talk about them and he wanted to not preclude any side.”

It is not clear who proposed the tax increases, and members of the commission who were said to have spoken in support of them did not return calls seeking comment.

Members and some staff to the commission, many of whom spoke on background because of the closed-door meeting, cautioned in interviews that while none of the possible recommendations are off the table none have been finalized, either. Some, such as the tax increase proposals, are likely to be included not as final recommendations for legislation but as a part of the report that identifies specific issues holding back business growth in the state and potential solutions.

All of these proposed tax increases come against the backdrop of the election of Republican Gov. Larry Hogan in what was widely viewed as a pocketbook campaign. Hogan has vowed not to raise taxes during his term and is seeking ways to cut state taxes and reduce the overall size of Maryland’s budget.

“A reasonable person would be skeptical that tax increases would make it into the report given this (political) climate,” said Del. C. William “Bill” Frick, D-Montgomery County and a member of the commission.

But Frick added it will be hard for “legislators to endorse, in the abstract,” tax cuts without identifying offsets to make them revenue neutral.

The half-dozen or so legislators on the commission who were in attendance last week, both Democrats and Republicans, weren’t eager to support talks of tax increase, Hershey said.

“No legislators were willing to (support) a tax increase based on what I saw,” said Hershey. “It was very definitive that no one was on board from a legislative perspective.”

Del. Eric Bromwell, D-Baltimore County and one of the few so-called conservative Democrats remaining in the House, learned of the proposal from a reporter and said he was “floored.” He is not a member of the Augustine Commission.

“We just came off an election where people made it clear (tax increases) are not what they want,” Bromwell said. “If the whole goal of the commission was to make Maryland business-friendly, there’s no way you’ll convince me that raising the gas or alcohol or tobacco tax will get us close to that.”

The prospect of recommendations that might include discussions of tax increases were met with surprise by some and flatly rebuked by Comptroller Peter V.R. Franchot, a Democrat, and by a spokesman for Republican Gov. Larry Hogan.

“As Governor Hogan has repeatedly made clear, Maryland’s high taxes have hurt our economy and business environment,” said Douglass Mayer, a Hogan spokesman. “Raising them even higher defies common sense and is not something he will ever consider.”

A spokesman for Franchot issued a similar statement. Len Foxwell, Franchot’s chief of staff is a member of the commission.

“Comptroller Franchot respects the efforts of the commission, but is quite surprised that a body convened by legislative leaders to find ways to improve Maryland’s business reputation would consider doing so by dramatically raising taxes on consumers and small businesses, ” a spokesman for the comptroller said in a statement. “Taking money out of the pockets of hardworking Marylanders who are already struggling in a tough economy is the last thing that would improve Maryland’s business reputation.”