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Republicans did offer alternative to tax hike

May 23, 2008|By ANTHONY O'DONNELL

Recent coverage of the repeal of the computer services tax in Maryland is reminiscent of George Orwell's book "1984." Some of the same legislators who argued strenuously in favor of the tax during the special session are now hailed as heroes for its repeal. As a few issues have been confused and distorted, I would like an opportunity to clarify some facts.

The expansion of the Maryland sales tax to include computer services was enacted during the November 2007 special session. It was added to the already historic tax increases in, literally, the dark of night in a Senate committee, with no discussion or input from citizens or members of the industry.

This game of tax hokey-pokey went on for several days, as various industries were in, then out. Ultimately, the tech-services industry became the loser in this game. At that time, the Republican Caucus argued how damaging this tax would be to Maryland's burgeoning tech industry and to the state's economy. I also pointed out how unfair the process was that led to this tax's inclusion in the package being strenuously pushed by Governor Martin O'Malley and the Democrat leadership.

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An amendment was offered to strip the tech tax from the package, but failed. The General Assembly went on to pass the largest tax increase in Maryland history. Once again, Republican members argued and voted against these taxes, proposing as an alternative specific reductions in the rate of spending growth to address the looming deficit.

From the start of the 2008 legislative session, the Republican caucus made it a top priority to repeal the computer-services tax. When the budget was being considered, we again proposed very specific reductions in the rate of spending growth. That would have allowed a repeal of the tax without the need for additional taxes. Once again, the amendment was defeated.

Gov. O'Malley and the Democratic leadership chose to ignore all of the alternatives presented by the Republican caucus, and, after finally succumbing to public pressure, replaced the tech tax with another tax, the so-called "millionaire's tax." This was entirely unnecessary. As Republican members have pointed out many times, Maryland does not have a revenue problem, it has a spending problem.

One final time, Maryland Republicans offered an amendment to repeal the computer services tax without backfilling with another tax, by making sensible reductions in the rate of spending growth. Once again, it was rejected.

The repeal of the tax on computer services, while removing a burden on an industry Maryland should be encouraging, cannot be lauded as a victory without examining the effect of this new tax. The increased income tax is likely to have an equally damaging effect on Maryland's economy.

Many of the individuals who qualify for this increased tax are actually small businesses who file as Subchapter S corporations, so once again, a tax has been imposed which will damage small business.

When California imposed such a high-income tax several years ago, 5,000 of the state's 25,000 highest-income earners left the state. By depending on such a narrow sector of the tax base for so much of its revenue, California quickly went into a $7 billion deficit, largely attributable to the new tax. Just like the tech tax, this new burden provides a disincentive for these high-income families to reside in Maryland, and contribute to our state's economy, as well as to the state coffers.

Clearly, the decision of a few of these highest income earners to leave Maryland in search of greener pastures would have a huge impact on our state's finances, which are already unstable.

Anthony O'Donnell is minority leader of the Maryland House of Delegates and represents District 29.

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