Progressive Tax Ratchet

O'Malley's Tutorial

Maryland's Governor offers a lesson in progressive taxation.

WSJ Opinion, May 22, 2012

Governor Martin O'Malley is the gift that keeps on taking. Even as he grabs ever more from Maryland taxpayers, he's providing useful instruction in the real purpose and pattern of progressive taxation, which is that sooner or later it comes after the middle class.

Last week the legislature in Annapolis enacted another huge tax increase, this time hitting anyone earning more than $100,000 ($150,000 for couples). This isn't a tax on the 1%. It's a tax on the top 14%.

Readers may recall that when Mr. O'Malley first raised taxes, in 2007, he said he could balance the budget on the backs of the rich. That didn't work out so well. The number of millionaires fell sharply in the state, whether because of the recession or because they sought tax shelters or simply fled to lower-tax states. Revenues came in far below projections, and the deficit forecast ballooned. (See "Millionaires Go Missing," May 26, 2009.)

So Mr. O'Malley is now going where the real money is—the middle class. The highest state-local combined income tax rate will rise to 8.95% from 8.7% and 7.95% when Mr. O'Malley became Governor, giving Maryland one of the highest rates in the nation. About 300,000 Maryland filers reported six-figure incomes last year.

A family of four earning $250,000 a year will be able to save money by moving to Washington, D.C., arguably the most liberal city in America. The same family can save $6,000 a year by relocating across the Potomac River to Virginia, where the top tax rate is 5.75%, according to the Tax Foundation. State Senator James Brochin, a Democrat who opposed the tax increase, says: "I won't be at all surprised if we're not back in two years with a new plan to raise taxes."

The alternative would be to reduce state spending to match current revenues, especially in a state where spending has grown to $35 billion from $28 billion since 2007. But most Democrats and their union allies denounced an alternative plan to avoid the tax hike and allow spending to grow by $700 million, or 2%, as a "doomsday budget." The tax bill ties the new revenues to a pay raise for public-employee unions. Mr. O'Malley says government services are "severely undercapitalized," as if Maryland households aren't.

The progressive tax ratchet—the racket—is to pretend government can squeeze more money from the rich than is possible, then spend the imaginary windfall, then when deficits persist claim there's no choice but to raise taxes on the upper middle class and eventually on everyone who has income to tax. This is why Californians making as little as $48,000 pay a tax rate of 9.3%.

Our condolences to Maryland residents who are getting soaked again, but thanks to Mr. O'Malley for this tutorial in progressive government. In a second term, rest assured President Obama will do the same.