Monday, April 07, 2008

Tech Tax Repealed and Internet Spending Website Adopted

There is good news on two fronts as the Maryland General Assembly ends its regular session. The legislature repealed the 6% tax on all manner of computer services that was scheduled to take effect this July. The tax was adopted hastily without public debate in last fall’s special legislative session. And the Assembly has adopted a bill requiring the state to establish a free, easily searchable website that will enable the public to track state spending and contract activity.

The Free State Foundation urged repeal of the computer services tax almost before the ink dried on the legislature’s handiwork. And FSF was an early – and initially fairly lonely – voice urging adoption of the transparency bill when this particular effort to bring more accountability for state government spending was viewed as quixotic in Annapolis.

On the computer services tax repeal, for example, see my This Maryland Tax Doesn’t Compute and Maryland Computer Services Tax Malfunction pieces, my testimony submitted to the General Assembly, and FSF Senior Fellow Cecilia Januszkiewicz’s Random Acts of Taxation commentary in the Baltimore Examiner. All explained that targeting computer services for a new sales tax is surely counterproductive as Maryland tries to encourage the growth of a high-tech sector in competition with neighboring states. As I said as soon as the tax was passed:

The types of services that would be impacted by the new tax are integral to the installation and maintenance of high-speed broadband networks upon which so much of today's information economy depends. By virtue of their importance in enabling the efficient and less costly delivery of other goods and services, computing services have a positive multiplier effect on the economy at large.

The repeal legislation replaces the projected $200 million “revenue loss” with an income tax surcharge on those individuals earning above $1 million, a reduction of $50 million in the transportation trust fund for five years, and a direction to the Governor to cut an additional $50 million from the state budget by July 1. It would have been preferable for the legislature to implement further spending cuts to fill the projected revenue gap, rather than further increasing taxes. Like computer services firms, Maryland’s citizens can move to Virginia too. But when all is said and done, the repeal of the computer services tax is a positive action for which the legislature and the Governor deserve credit.

And the enactment of Maryland Funding Accountability and Transparency Act is another positive action deserving of credit. Last year, when a virtually identical measure requiring creation of an easily searchable website tracking state spending over $25,000 was introduced by two Republicans, Delegate Warren Miller and State Senator Alex Mooney, it received little support, and almost none from Democrats. I published an early commentary, Bring Accountability and Transparency to Maryland Government, in the Baltimore Sun on March 20, 2007, urging enactment, and several blogs as well.

In addition to more writing on the subject over the past year, I submitted testimony this past February in support of the reintroduced measure. This year the bill passed both houses with overwhelming bipartisan support, certainly a tribute to the work of Delegate Miller and Senator Mooney.

Presumably it is also a triumph of the simple but fundamental notion that, in this digital age, citizens ought to be empowered to easily obtain information about how their government spends their taxpayer dollars. While there is a cost to be sure in establishing and maintaining the new website, when other states and the federal government have established such sites the costs have been minimal. For example, when the federal government recently established its spending website, www,, the database was created for less than $1 million and the software costs about $600,000. Whatever costs are incurred in setting up and maintaining the new portal most likely will be exceeded in short order by the cost savings realized as citizens become more vigilant in monitoring the way the state spends its money. This is the “accountability” part of the bill’s title. Surely legislators and executive branch officials will be more sensitive about spending, grants, and contracts that may not easily withstand public scrutiny.

Indeed, now that the Maryland Funding Accountability and transparency Act has passed, the legislature and Governor should not rest on their laurels. There is much other information impacting the state’s fiscal situation and operation that is not posted (or easily found) on the state’s website. For example, reports from various state commissions often are not posted. There is no reason why, in this day and Internet age, a citizen should have to travel to Annapolis and root through paper files to find and read such information.