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After Two Decades of Decline, Maryland Taxes
Are Lower Than Most Other States' Taxes
Maryland taxpayers pay less in taxes to state and local governments than taxpayers in most other states, according to a study by the Maryland Budget and Tax Policy Institute.
Maryland's overall state and local taxes, relative to the size of the state's economy, are the nation's 37th-highest and the seventh highest among eight nearby jurisdictions, according to the study. Delaware, New Jersey, North Carolina, Pennsylvania, Washington, D.C., and West Virginia all have higher taxes than Maryland; only Virginia has lower taxes, the study found.
The report includes income taxes, sales taxes, property taxes, and all other taxes based on data collected by the U.S. Census Bureau's Government Finances division for fiscal year 1996.
The report also found that Maryland's overall state and local tax level fell by 6 percent from 1979 to 1996, two years at similar points in the business cycle. By contrast, taxes in 35 states rose slightly during that period. Among Maryland's neighboring states, none reduced taxes as much as Maryland; Delaware reduced taxes by 5 percent while six other nearby jurisdictions saw taxes increase relative to state economies.
"After two decades of declining tax levels in Maryland, the evidence is clear that Maryland is a low-tax state," said Steve Bartolomei-Hill, director of the Institute and co-author of the report.
Total tax collections in Maryland in 1996 equaled 10.5 percent of state personal income, compared with a national average of 11.1 percent, the report found. Alaska collected the most total taxes; New Hampshire collected the least.
Total state and local government revenue in Maryland - including revenue from all taxes, fees and charges as well as from the federal government - ranked 49th among the 50 states, with only New Hampshire collecting less total state and local government revenue.
The rankings are among 18 tables of data contained in the Institute's second annual Chartbook on Taxes in Maryland.
The tables also show that Maryland's sales taxes, property taxes, corporate income taxes, and most other taxes are among the nation's lowest. "Maryland keeps sales, property, and business taxes low in part by maintaining strong personal income tax collections and in part by keeping the overall level of taxation lower than in other states," said Nick Johnson, a senior analyst at the Institute and co-author of the Chartbook.
The report does not reflect major tax cuts passed in the 1997 and 1998 legislative sessions; those tax cuts are continuing to phase in through tax year 2002. The Chartbook notes that low taxes are not the only desirable feature of a fiscal system, and calculates that in 1996 Maryland would have needed to cut taxes by at least $2 billion to become the nation's lowest-taxing state. Such tax cuts would have required dramatic cuts in public services such as education, roads, and the environment.
"Good public services are just as important to residents and businesses as low taxes," Johnson said. "Cutting taxes more when the state's taxes are already so low could reduce the quality of Maryland's public services, making this state much less appealing as a place to live and to work."
In addition to reporting on taxes and revenue collections as a share of the economy, the Chartbook ranks the states by their personal income tax rates (both state and local), their income tax thresholds (the income level at which families begin paying taxes), their cigarette tax rates, and their gasoline tax rates.
The Institute - a project of the Maryland Association of Nonprofit Organizations - is a non-partisan research organization that studies state tax and budget issues. Most of the rankings in the Chartbook are based on the U.S. Census Bureau's State and Local Government Finance Estimates, the only comprehensive source of data on the taxes collected by the nation's 50 states and tens of thousands of local governments. The Institute adjusted the data for total personal income in each state as measured by the U.S. Commerce Department, a standard methodology among state finance analysts.
The Chartbook is available online at www.marylandpolicy.org. Copies are also available by contacting the Institute at 301-565-0505.