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The numbers are rolling in today, and there is VERY BAD news for O'Guvnah and his Dark Servants in Soddom on the Severn. It is starting to look like the dramatic tax increases from the SOCIALIST SESSION back in November have backfired in a HUGE way.
According to this report in the Calvert Street Communist Party Newsletter, the state is looking at a drop of $330 million in projected revenues over the next $16 months, despite $1.3 billion dollars in tax increases.
There are a couple of important things to note here from an economic perspective.
1) Remember that the $330 million drop in projected revenues represents only a small percentage of the total decline in economic activity that has already occured and will occur. This is because taxes represent only a certain percentage of overall economic activity. And I doubt that number is even close to accurate, because these effects ripple out at incredible speed.
For example, declining new home construction and sales will impact realtors, notaries, attorneys, title companies, inspection companies, contractors, contractor suppliers, payroll companies that service all the above, manufacturers that supply the suppliers and so on. As the effects ripple further out, the impact is actually HIGHER, as you are impacting more salaries and real property taxes the further out from the center.
2) This number is based on less than 60 days of new tax laws being in place. That means that people and businesses are already starting to adjust their spending and investment less than 60 days after new taxes go into place. I, for one, have largely eliminated shopping in Maryland. With the exception of gasoline and my cigars, I do all my grocery and clothes shopping in Pennsylvania. As consumers in Maryland begin to see the real and dramatic impacts of these taxes, they will further adjust their behavior.
My bet is that the next serious hit will be the big box electronics stores, as more people move their purchases online to avoid taxes. Which of course, means that we will probably see O'Guvnah and his Dark Servants pushing to abolish Internet sales tax bans.
3) Michael over at monoblogue makes some great points in his latest Post "Economics 101". One point he makes that you can increase tax revenues by cutting tax rates. This is true to a point. There is a diminishing return on the Laffer Curve for tax rate cuts. The key point on the curve-- where you maximize tax revenue at the lowest rate possible -- is based on taxpayer perceptions that taxed economic activity has a lower value based on the onerous nature of the taxes. Maryland already had a reputation as a highly-taxed state that was wasteful in spending, and by increasing taxes over twice the amount that they were willing to cut spending, the General Politburo has only reinforced this perspective, making any tax increase more onerous than it was before.
We are entering a very dark period here in Maryland. It seems that more of the state has taken to my idea of "Starving the Beast" than I thought possible. O'Guvnah's need to genuflect before radical environmentalists, his largest campaign supporters, and the powerful municipal employee unions has created a crisis in state finances that is becoming his undoing. Unfortunately, as the citizens of Baltimore learned in the School Budget Fiasco of 2005, O'Guvnah isn't really into accepting responsbility for his failures in leadership and management and doing the right thing for the citizens of whatever government he is leading.
Marylanders need to continue to put the ultimate pressure on O'Guvnah -- voting with our feet and our pocketbooks -- to force his hand. It's a dark period, and there is light at the end of the tunnel. And if we hold our slothful General Politburo members to account, that light will not be the headlights of an oncoming CSX train.