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July 18, 2007

Unequal treatment under law

Governor O'Malley called for a reform of the Maryland criminal code today, stating that the current structure was "patently unfair." He argued that Peter Angelos, the wealthy trial lawyer who owns the Baltimore Orioles, should not have the same rights as "the woman who cleans his office."

Oh, wait a minute! I think I got that wrong. He was talking about the tax code, not the criminal code, and he said Angelos shouldn't pay the same rates as the woman who cleans his office.

Whew, what a relief! We're all in favor of progressive taxation, aren't we? It's just not fair that Maryland taxpayers all pay the same basic tax rate. As the Governor put it:

"I'm in favor of progressive taxation, where people who make a lot more pay more," O'Malley told reporters recently.
Because, you know, in a flat tax system, people who make a lot more actually pay a lot less. Or something. Oh, never mind.

In a flat tax system, the tax rates people pay on net taxable income are the same, regardless of income level. Maryland's is a modified flat tax system, because the state collects a local income tax for the counties, who "piggyback" on the state tax by adding to the state rate for their own taxpayers. We'll ignore that here for the sake of simplicity. Maryland's state tax rate is flat at 4.75%, after the first $3,000, which is taxed at a lower rate.

So let's do the math with the Governor's example. For these purposes we'll simplify by assuming Angelos, who's probably a billionaire, has a taxable net annual income, after deductions and exclusions, of $100 million and that the cleaning lady has a taxable net annual income, after deductions and exclusions, of $10,000.

Let's compute their taxes under the current flat-tax scheme. For simplicity, we'll ignore the differential rate on the first $3,000.


.0475 x $100,000,000 = $4,750,000.

Cleaning Lady:

.0475 x $10,000 = $475. (It's actually $424 under the tax tables, but we're ignoring that here.)

Hmmmm. Angelos, in our example, pays 10,000 times as much in state taxes as the cleaning lady. I guess Governor O'Malley is right -- we need progressive tax rates to make sure "people who make a lot more pay more." What's that? He pays a lot more under a flat tax already? How can that possibly be?

I'll tell you how it can be. Governor O'Malley's argument for progressive tax rates is a phony. It's a way of punishing wealthy people for having created wealth. It's a scheme based on ideology, not economics, and on envy, not fairness.

Believe me; I hold no brief for Peter Angelos or anyone else who's a trial lawyer and sleazy sports team owner. I'm merely using him as an example, because the Governor chose him as his poster boy for progressive taxation.

There's an old joke that a lottery is a tax on people who don't understand math. Progressive taxation is a tax scheme pushed by people who do understand math but hope other people don't.