Wireless Taxes Are Way Too High

The Wireless Foundation's valuable annual report regarding the taxes and fees imposed on wireless services has just been released. It short, it paints a dismal picture for consumers with respect to the taxes, fees, and government surcharges added to their bills.

 The top line: A typical American household with four phones on a “family share” plan, paying $100 per month for taxable wireless services, would pay over $330 per year in taxes, fees, and government surcharges.

 

Taxes, fees, and government surcharges now make up a record-high 27.60% of the average wireless services bill.

 

The federal Universal Service Fund (FUSF) charge has increased again, from 12.76% to 13.36% of the average wireless services bill, and state and local taxes on the average bill also increased, from 14.01% to 14.25%. Together, you get the 27.60% total.

 

Maryland, where the Free State Foundation is located, ranks in the top quartile of those states with the highest taxes, fees, and government surcharges imposed on wireless services. Over 30% of the average Marylander's wireless services bill is composed of those add-ons.

 

Some good news: The average charge from wireless providers has decreased by 29% since 2012, from $47.00 per line per month to $33.36 per line.

 

Now the bad news: During this same time, wireless taxes, fees, and government surcharges increased from 17.18% to 27.60% of the average bill. The result – the consumer benefits from lower wireless prices are almost totally offset by higher taxes and fees.

 

Of course, the Tax Foundation's report is not just a sterile exercise in collecting and organizing data. All this matters greatly to consumers, and especially to low-income families. According to the report, approximately 83 percent of low-income adults live in wireless-only households. Wireless taxes, fees, and surcharges are regressive and disproportionally adversely impact low-income families.

 

That should be reason enough for state and local taxing authorities, and the federal government with regard to the USF fee, not only to halt the upward trend but to act to substantially reduce the current tax burden on wireless consumers!

Governor Moore Fails to Improve Maryland’s Tax Competitiveness

On October 31st, the Tax Foundation released the 2025 State Tax Competitiveness Index, which ranked states’ overall tax systems and certain individual taxation categories. The index considered several criteria for ranking states, including tax system complexity, aggressiveness, and structure. Additionally, the index considers corporate income, individual income, sales, property, and unemployment insurance taxes in the overall rankings.

In August 2023, Governor Wes Moore said, “Maryland has some of the best talent and assets in the world. But our economy is not reaching its full potential [...] The time for discipline is now.” Throughout his tenure as governor, Moore has continued claiming the state needs to make “difficult fiscal decisions.” Still, while he has continued to tout the need for budgetary discipline, Maryland’s government continues to fail to have enough discipline to create a competitive tax environment. This is why it is the fifth worst state in the nation in terms of “tax competitiveness.”

Maryland’s poor ranking is not entirely new, as it has been considered one of the ten least competitive state tax environments since 2020. However, according to the Tax Foundation's new analysis, Maryland’s score has worsened since then, so that it is now ranked 46th in the nation. For some states, being uncompetitive on taxation may be acceptable. For example, Hawaii is also poorly ranked, but few states compete for people and businesses with Hawaii. Maryland, however, has four states bordering it, as well as the capital. Except for DC, every state bordering Maryland is ranked at least 12 spots higher for tax competitiveness.

Virginia, in particular, is a competitor for businesses and people looking to live in the extended DC area. Its overall state taxation competitiveness ranking is 28th, 18 places better than Maryland's. Unlike some states with few or no bordering states to compete with, Maryland’s competitiveness with other states will heavily impact how many people and businesses vote with their feet.

Examining the index, it is clear that Governor Moore must do more than he has thus far if he wants to improve Maryland’s very poor tax competitiveness ranking.

Because the index considers so many taxes, Maryland’s overall scoring is poor for a multitude of reasons. Firstly, Maryland’s income tax is very progressive, with a high maximum tax rate of 5.75%, meaning higher income earners will want to live elsewhere. Additionally, standard deductions and personal exemptions are relatively small in Maryland, and there are no tax adjustments for inflation. Thus, as the U.S. dollar’s value declines due to inflation and wages are adjusted to match that, even working-class Marylanders will slowly move into higher tax brackets.

Maryland’s corporate tax rate is 8.25 percent, significantly higher than Virginia, West Virginia, or North Carolina’s. Maryland’s inclusion of a global intangible low-taxed income in its corporate tax base makes it rare among the states. This means that even profits from non-U.S. companies owned by Marylanders are taxed at the state corporate tax rate, which many other states do not require, including Virginia and Pennsylvania.

Lastly, Maryland’s tax complexity is much higher than other states. It is the only state in the country to impose digital advertising taxes, which are difficult to navigate and comply with. Although this tax only went into effect in 2022, multiple lawsuits have already been filed contesting the law behind it. Maryland is also the only state in the country with both estate and inheritance taxes, with high maximums, further incentivizing wealthy taxpayers to leave the state.

While many of these tax policies existed before Gov. Moore entered office, a governor showing proper fiscal “discipline” should fight to reduce these taxes. Moore should pursue the fiscal discipline he advocated for at the start of his administration and increase Maryland’s tax competitiveness. Otherwise, the state will continue to lag behind its neighbors economically.

Tax Foundation Reports on Overtaxed Wireless Consumers, Including in Maryland

On November 13, the Tax Foundation released a report titled "Excise Taxes and Fees on Wireless Services Drop Slightly in 2023." It is the 14th edition of the Tax Foundation’s report on taxes, fees, and surcharges imposed by federal, state, and local governments on wireless services. According to the report, "Nationally, taxes, fees, and government surcharges make up a record-high 24.5 percent tax on taxable voice services.” Also, the report found that since 2012, the average charge from wireless providers decreased 26%, from $47.00 per line per month to $34.56 per line, yet wireless taxes, fees, and surcharges increased from 17.2% to 24.5% of the average bill.

The Tax Foundation's report helpfully describes the multiple types of taxes, fees, and surcharges that different governments impose on wireless services, and offers breakdowns and rankings for different states. Among the states, the report found that the state of Maryland had the 11th highest wireless tax rate at 15.91%. And presuming an effective federal USF tax rate of 10.83%, the result is that Maryland residents are hit with a combined federal/state/local tax rate of 26.74% on their wireless service bills. As the report observes, tax rates for wireless services in many states are significantly higher than general sales tax rates.  Maryland had the 7th highest disparity between wireless taxes and general sales tax, as Maryland's 15.91% tax rate for wireless services is much higher than the state's general sales tax rate. 

 

Rightly, the Tax Foundation's report identified serious policy problems that arise from state and local governments singling out wireless services for higher tax, fee, and surcharge burdens. The financial burdens fall the hardest on low-income consumers, many of whom live in wireless-only households for Internet access. And high taxes can harm private sector investment in wireless network infrastructure. Also, the goal of tax policy ought to be collection of revenues. To that end, tax laws should ideally be neutral toward consumer activity. It is a misuse of tax laws to target or try to change specific behaviors.

 

By shedding light on the problem of wireless over-taxation and ranking the states with the biggest wireless tax addictions, the Tax Foundation has provided an important public service. Maryland and other states should reform their tax policies and cut their taxpayers a break. 

Maryland Plunges to a New Low: It Ranks 46th in the State Business Tax Climate Index

The Tax Foundation just released its 2022 State Business Tax Climate Index—and, unfortunately, Maryland continues its downward slide. It now ranks 46^th overall among the states and the District of Columbia due to bottom-half ratings in each of the measured subcategories. This is Maryland's lowest ranking since at least 2014 and possibly marks its all-time low. It should be a clarion call of the need for tax reform in the state.

States compete with other states for businesses, residents, investment, jobs, and revenues by implementing business-friendly tax policies, and Maryland's rank as 46^th shows serious room for improvement. As the Tax Foundation explains, a business-friendly tax environment does not mean tax-free anarchy. It means structuring major taxes with "low rates and broad bases." The broader the "base," meaning the total amount of economic activity subject to a specific tax, the lower the rate a state needs to impose to achieve its revenue target.

The Tax Foundation's State Business Tax Climate Index assesses a state's overall performance based on five major areas of taxation that affect business: corporate tax, individual income tax, sales tax, property tax, and unemployment insurance tax. Some states do not assess all of these taxes, but that fact does not guarantee strong performance on the Index. Utah and Indiana, both of which rank in the top 10, impose all of the major taxes as Maryland does, but they avoid "complex, nonneutral taxes with comparatively high rates" that detract from Maryland's economy.

Maryland could improve in virtually every area, because its 46^th overall rank reflects its bottom-half performance in every category:

• Unemployment insurance tax (46^th)
• Individual income tax (45^th)
• Property tax (43^st)
• Corporate tax (33rd)
• Sales tax (26^th)

Over the years, Maryland has been a consistent bottom-tier performer with unemployment insurance taxes, because it does not have "rate structures with lower minimum and maximum rates and a wage base at the federal level," which cause uneven burdens on employers. Maryland has the highest minimum unemployment insurance tax rate in the country at 2.2% and one of the highest maximum rates at 13%. It also relies on a wage base above the federal level. These factors lead to non-neutrality in the unemployment tax by assessing more tax on struggling businesses and industries with endemic turnover, like retail. It makes little sense to burden struggling businesses with high unemployment taxes when doing so risks more unemployment.

Maryland also has a high progressive individual income tax that places it in the bottom 10% of states in this category. This is a problem for Maryland's business climate because "a significant number of businesses, including sole proprietorships, partnerships, and S corporations, report their income through the individual income tax code." Progressive taxes disincentivize labor over leisure for high income earners, which means Maryland's tax code encourages wealthy individuals to spend money on activities like travel and entertainment instead of hiring workers and investing in Maryland's economic growth. This disincentive is especially concerning at the state level, where individuals can "vote with their feet" by relocating to lower tax jurisdictions. Maryland's income tax also ranks poorly because it is not indexed to inflation, includes a marriage penalty, and double-taxes capital gains and dividends. Maryland could improve its business environment by eliminating or reducing the extent of these problems.

Maryland's property tax regime falls in the bottom-10. Property taxes are not just taxes on ownership of real property—they also include any tax assessed to tangible or intangible property, such as business inventory taxes, real estate transfer taxes, estate taxes, and inheritance taxes. Maryland's poor performance on the Business Tax Climate Index is largely attributable to its property taxes that distort business decisions. For example, Maryland taxes business inventories, a tax that has the effect of discriminating against retailers and forcing businesses to factor tax minimization into sales and procurement strategies. Maryland also taxes real estate transfers, which increases compliance costs and distorts decisions when businesses or individuals seek to transfer non-liquid assets, including small business and family-owned property. Maryland is also the only state in the country to levy both an estate tax and an inheritance tax, often causing double-taxation of inherited property. These taxes cause businesses and individuals in Maryland to make decisions about property based on tax strategy rather than economics, so they should be eliminated.

Maryland's corporate tax ranking is not quite as abysmal as it is in the previous three categories but it still needs work. High corporate tax rates with progressive bracketing discourage businesses, especially when nearby states have lower taxes. In Maryland, corporations pay an 8.25% tax rate on business profits. Imposing a single rate is positive. But 8.25% is a relatively high rate compared to other states, so businesses may be deterred from locating in Maryland, especially when nearby Virginia has a lower 6% rate. Additionally, Maryland does not conform with federal policy for deducting depletion, which adds complexity for businesses that deal with natural resources. Maryland should reduce its corporate rate and conform with federal depletion policy to attract business.

Maryland's sales tax regime earned the state's best subcategory ranking, but this ranking was still relegated to the bottom-half thanks to "including too many business inputs, excluding too many consumer goods and services, and imposing excessive rates of excise taxation." For example, Maryland's 6% sales tax rate could be reduced if it didn't provide a wide variety of sometimes seemingly arbitrary exemptions for various goods and services. Meanwhile, Maryland taxes business production inputs like leases, information services, and office equipment. Businesses likely pass taxes imposed on these items to end users of finished products, on whom the sales tax might apply again. Maryland could improve its ranking by eliminating exemptions for consumer goods and services while exempting inputs—creating a broader base that allows for overall lower sales tax rates.

The harmful effect of Maryland's 46^th place overall ranking becomes clear when you consider the more competitive rankings of adjacent states. All of the states bordering Maryland have better Business Climate Index rankings, except for the District of Columbia. These states include Delaware, Pennsylvania, Virginia, and West Virginia. Delaware's 16^th place ranking is the best, and this might help explain why Delaware has the highest population growth rate among Maryland and its neighboring states. Virginia ranks 25^th on the Index and also has a higher population growth rate than Maryland. While Maryland has faster population growth than Pennsylvania (29^th) and West Virginia (21^st), the potential for these states to outcompete Maryland for business and residents solely because of Maryland's unduly high tax rates and overly burdensome tax policies should alarm lawmakers.

The 46^th place ranking on the State Business Tax Climate Index should be a wakeup call to Maryland's government officials and its citizens. This bottom-dwelling ranking suggests that Maryland's tax code pushes investment, job growth, and revenue, as well as jobs and potential new residents to other states. And because Maryland's ranking has continually declined over the last decade, it appears other states are taking the benefits of tax reform more seriously.

Adoption by the legislature of the tax reforms suggested above, and others discussed in the Index, would stop Maryland from losing further ground to other states, including its neighbors, and would help spur more economic growth that would benefit all of Maryland's residents.

Wireless Tax Hikes Mute Price Cuts - Tax Foundation Report

This week the Tax Foundation released its annual report for 2021 regarding the imposition of various taxes, fees, and surcharges on top of the charges for basic wireless services. The report highlights how regressive, record-high rates prevent low-income Americans from fully benefitting from price cuts by mobile carriers. These regressive fees almost certainly widen the digital divide, despite the consensus from policymakers that closing it is a top priority.

The overall tax rate customers paid on wireless in 2021 increased to a record high 24.96%, another year-over-year hike. Higher Universal Service Fund (USF) rates fueled the spike, though some states and localities hiked various sales taxes, 911 fees, or wireless surcharges. In total, governments collected $11.3 billion, about half for USF and half for state/local consumption taxes. Thanks to record high fees, a family of four paying $100 per month for four wireless voice lines paid $300 in fees this year. The same family paid $270 in 2020, amounting to an 11% year-over-year increase.

Taxes are increasing despite cuts in wireless service prices absent the added taxes, fees, and surcharges. The average line price dropped to $35.31 in 2021, a 15% decline from $41.50 in 2017. But consumers aren’t fully benefitting from the price cuts because the hikes in the various taxes, fees, and surcharges partly offset them.

And the burden of fee hikes falls heaviest on low-income Americans. Wireless taxes are regressive, since they are almost all flat rates or per-line fees. Plus, 74% of low-income adults subscribe to wireless voice only, compared to 65% of all adults. So every hike in wireless fees shifts more burden to low-income Americans.

Offsetting price cuts for wireless services with hikes in taxes, fees, and surcharges is no way to close the digital divide. Instead, governments should look to broader revenue sources that let consumers benefit from lower-prices. Lower prices would encourage more wireless adoption for Americans most in need. Then, closing the digital divide would be closer to a priority than lip service.

Proposed Maryland Tax on Digital Advertising Is Problematical

As the Maryland General Assembly gets geared up for its 2020 legislative session, a bill has been introduced by the current and former Senate majority leaders to tax online ad revenues. The sponsors say that such a digital advertising tax could raise $100 million a year.

It's true that Maryland's fiscal situation could use shoring up to reduce the perennial "structural deficit" that characterizes Maryland budget. But the proposed digital advertising tax is problematical for several reasons relating to sound tax policy.

For a good discussion, see this piece by the Tax Foundation's Ulrik Boesen.

We'll likely have more to say about this as the legislative session progresses.  

Report Tracks Tax Hikes on Wireless Consumers in 2019

In a report published by the Tax Foundation in late November, Scott Mackey and Ulrick Boesen provide an abundance of data on wireless taxes as well as government surcharges and fees imposed on wireless consumers. Their report, "Wireless Taxes and Fees Jump Sharply In 2019," tracks the overgrowth of wireless taxes over time and also compares overall tax bills faced by consumers in different states. As a general matter, states should not tax consumers of wireless services at rates higher than their general sales tax rates. Unfortunately,  the problem of over-taxation of wireless consumers appears to be growing. Consider this key report finding: 

Since 2008, average monthly wireless service bills per subscriber have dropped from just under $50 per line per month to $37.85 per month–a 24 percent reduction. However, wireless taxes have increased from 15.1 percent to 21.7 percent of the average bill–a 44 percent increase.

Repealing SALT Deduction Should Improve Maryland’s Economy in the Long-Run

The House of Representatives and the Senate passed different versions of the Tax Cuts and Jobs Act. Both versions of the tax reform bill would repeal the state and local tax deduction (SALT) for income and sales taxes. Although this repeal might hurt some Maryland taxpayers in the short-run, it should be a spur to create greater fiscal responsibility in Maryland. If so, this ultimately would benefit Maryland taxpayers and help grow the state’s economy.

“SALT” is the acronym referring to the deduction for individuals who itemize certain tax payments to state and local governments on their federal tax returns. SALT is essentially a wealth transfer from residents in states with relatively low tax rates to residents in states with relatively high tax rates. Additionally, because residents who live in states with relatively high tax rates benefit disproportionately more from the SALT deduction, they have less incentive than they otherwise would to hold their public officials accountable regarding tax and spending policies.

Many Maryland residents benefit from SALT because it allows them to pay less taxes. According to a Tax Foundation study, residents in Maryland receive the 5^th highest SALT deduction as a percentage of adjusted gross income, behind residents in New York, New Jersey, Connecticut, and California. But SALT encourages Maryland policymakers at the state and local levels to spend even more than they otherwise would absent the SALT deduction because many residents will not be as adversely impacted.

In this way, over time, the SALT deduction promotes more fiscal prolificacy, less accountability regarding government spending, and diminished economic growth. So while many Maryland residents may think they are better off because of SALT, the longer-term negative effects of SALT may slow economic growth, ultimately making those same residents worse off.

As I stated in a July 2017 blog, Maryland’s fiscal health, ranking 46^th in the country in fiscal solvency in one study, remains poor. But the moral hazard of the SALT deduction only tends to exacerbate Maryland’s excessive spending problem. Regarding SALT, Jared Walczak of the Tax Foundation says:

The residents of some localities are willing to accept higher levels of taxation in exchange for greater government service provision; others prefer a smaller government which necessitates lower rates of taxation. Taxpayers may be supportive of increased levels of spending if part of the cost is borne by others; conversely, they may reduce expenditures if they believe that some of the benefit of that spending will be conferred on others. Federal subsidies thus place a thumb on the scale, distorting local decision-making.

Interestingly, the Congressional Budget Office (CBO) published a November 2013 blog titled “Eliminate the Deduction for State and Local Taxes.” The CBO said: “The deduction for state and local taxes is effectively a federal subsidy to state and local governments; that means the federal government essentially pays a share of people’s state and local taxes. Therefore, the deduction indirectly finances spending by those governments at the expense of other uses of federal revenues.” The CBO also stated:

Another argument [against SALT] is that the deduction largely benefits wealthier localities, where many taxpayers itemize, are in the upper income tax brackets, and enjoy more abundant state and local government services. Because the value of an additional dollar of itemized deductions increases with the marginal tax rate (the percentage of an additional dollar of income from labor or capital that is paid in federal taxes), the deductions are worth more to taxpayers in higher income tax brackets than they are to those in lower income brackets. 

If and when SALT is repealed, whether in whole or in part, the positive economic effects will not happen overnight. In fact, an October 2017 report published by The Heritage Foundation states that repealing SALT will only boost economic activity if it is also “accompanied by more efficient state tax-and-spending policies.” As of my January 2016 blog, Maryland had the 7^th highest state and local tax burden in the United States.

Governor Larry Hogan has made it his mission to reform Maryland’s burdensome regulatory and tax climates, and he already has succeeded to some extent. A recent CNBC study, “America’s Top States for Business 2017,” found that Maryland moved up eleven spots from 36^th to 25^th, since Governor Hogan took office.  However, more support is needed from the Maryland General Assembly for lowering tax rates and cutting spending in order to improve Maryland’s fiscal climate. If the SALT deduction is repealed, Maryland legislators will have a greater incentive to reduce excessive taxes and spending, stimulating economic growth in the long-run.

Senate Tax Bill Will Stimulate Maryland’s Economy

Earlier this month, the Tax Foundation published a study on the Senate’s version of the Tax Cuts and Jobs Act, finding that the plan would grow the economy while simplifying the tax code and reducing marginal tax rates.  Using the Tax Foundation’s Taxes and Growth macroeconomic model, the study finds that the proposed tax plan will create 925,000 new full-time equivalent jobs and will increase GDP by 3.7% over the next decade. Accounting for the increase in GDP, after-tax incomes will rise by 4.4%.

The Tax Foundation also published a state-by-state impact analysis of the Senate’s proposed plan. In Maryland, the study projected 17,322 new full-time equivalent jobs over the next decade and an average increase in after-tax income for middle-income families of $3,245. Lower marginal tax rates will complement Governor Larry Hogan’s efforts to reform Maryland’s business climate. This will further stimulate Maryland’s economy and improve its long-term fiscal health.

U.S. Should Reduce Tax Rates Across the Board

Today, the Tax Foundation published the 2017 International Tax Competitiveness Index, which finds that the United States ranks 30^th out of 35 OECD countries in tax competitiveness and tax neutrality. Specifically, the U.S. ranks 35^th in corporate taxes. Given that the U.S. has not reduced its federal corporate tax rate from 35% since the early 1990s, Congress should lower this rate as soon as possible to encourage additional economic activity.

The United States also ranks 29^th in property taxes, 25^th in individual taxes, and 33^rd in international tax rules. Although the U.S. does rank 4^th in consumption taxes, its unnecessarily high corporate rate harms its overall ranking. The combined U.S. corporate tax rate (including state and local corporate taxes) is 39%, which is significantly higher than the OECD average of 25%.

Congress and state and local policymakers should address this issue by reducing corporate rates and simplifying the U.S. tax code. The Index says that a simple, competitive, and neutral tax code contains low marginal tax rates with few economic distortions and “promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.” To avoid losing businesses and capital to countries with lower tax rates, the U.S. should reduce tax rates across the board.

Maryland and Other States Must Reduce Wireless Tax Rates

On October 11, 2016, the Tax Foundation published a report entitled “Wireless Tax Burdens Rise for the Second Straight Year in 2016.” According to report authors Scott Mackey and Joseph Henchman, wireless tax rates have increased to a record high 18.6% for the average U.S. consumer. Wireless consumers are paying an estimated $17.2 billion in taxes, fees, and government surcharges. And while average wireless bills have been dropping since 2008, consumers have been unable to enjoy the benefits because “taxes are growing at a rate twice as fast as average wireless prices have been falling.”

Wireless services have raised living standards for low-income Americans, offering them flexible low-cost connections to the rest of the world. Wireless communications provide low-income Americans cost-effective means for accessing health, transportation, and education services. However, burdensome state and local tax rates on wireless connections increase costs for low-income Americans who access these valuable services.

At the end of 2015, more than 64% of all low-income adults subscribed only to wireless voice services, whereas more than 48% of adults overall were wireless only. Wireless taxes and fees disproportionately harm low-income consumers because the taxes they pay represent a higher percentage of their income compared to middle and high-income consumers. With a federal Universal Service Fund rate of approximately 6.64%, state and local governments account for the remaining 11.93% of tax burden for the average American wireless consumer. These heavy taxes make it more likely that low-income consumers will drop wireless services. State and local governments must alleviate these disproportionate harms affecting low-income wireless consumers. For low-income adults who currently have no connection, a reduction in state and local wireless tax rates likely would encourage them to connect wirelessly.

Of course, all wireless consumers are harmed by record-high wireless tax rates. Artificial price increases from taxes reduce consumer demand and thereby reduce network investment. As Mr. Mackey and Mr. Henchman explain: “The reduced demand impacts network investment because subscriber revenues ultimately determine how much carriers can afford to invest in network modernization.” The authors add, “Higher taxes on wireless service, coupled with increased taxes on wireless investments, may lead to slower deployment of wireless network infrastructure, including fourth generation (4G) and fifth generation (5G) wireless broadband technologies.”

In Maryland, the wireless tax burden is severely harmful to consumers. Maryland and its localities charge up to five different taxes on a consumer’s monthly wireless bill. All combined, average wireless consumer tax burdens in Maryland far exceed the state’s general sales tax rate of 6%. Including Washington, DC and Puerto Rico, Maryland has the 15th highest combined wireless tax rate at 19.47%. But among Maryland’s neighboring states, Delaware ranks only 48th with a 12.98% combined rate. Meanwhile, Virginia is 47th highest with a 13.36% combined rate, and West Virginia is 46th highest with a 13.36% combined rate.

In particular, Baltimore has notoriously high wireless taxes. Baltimore charges a $4 tax per line per month. Therefore, the taxes on a basic $100 per month family plan of 4 lines would add almost $30 extra a month. (See chart below.) With the second highest combined wireless tax rate in the country – only Chicago ranks higher – Baltimore should reduce its wireless tax rates immediately in order to improve opportunities for its residents to cost-effectively access wireless services. More generally, Maryland should lower wireless tax rates to enhance opportunities for wireless providers to invest in statewide networks.

Table 6: Wireless Taxes and Fees on Multi-Line Plan in Selected Cities, July 2016
Federal, State, and Local
City	Tax on 4 line plan @ $100 per month	Tax Rate
Chicago, IL	$36.24	36.24%
Baltimore, MD	$29.84	29.84%
New York, NY	$27.11	27.11%
Philadelphia, PA	$26.24	26.24%
Omaha, NE	$26.06	26.06%
Seattle, WA	$25.94	25.94%
Providence, RI	$23.68	23.68%
Tallahassee, FL	$22.58	22.58%
Kansas City, MO	$21.49	21.49%
Los Angeles, CA	$21.19	21.19%

(Source: Scott Mackey and Joseph Henchman, “Wireless Tax Burdens Rise for Second Straight Year in 2016”)

In an October 17 blog post, Free State Foundation President Randolph May discussed ways that Maryland Governor Larry Hogan can improve his fiscal record. Governor Hogan’s two-year record of reducing taxes and fees and proposing to eliminate unnecessary regulations provides a strong start. The time is now right for the Governor to work with the Maryland General Assembly to reduce the tax burdens that wireless consumers experience on a monthly basis.

All state and local governments that burden their wireless consumers with heavy taxes should think twice about the harms being visited disproportionately on low-income consumers. State and local governments – including Maryland’s – should also recognize the negative impact that excessive and discriminatory taxation has on consumer demand and on network investment. High taxing states and localities should significantly decrease wireless tax rates to encourage more wireless connections for consumers of all income levels and more investment from wireless providers.

Maryland Has Relatively Low State and Local Sales Tax Rates, But…

On July 5, 2016, the Tax Foundation released a report entitled “State and Local Sales Tax Rates, Midyear 2016.” The authors, Jared Walczak and Scott Drenkard, ranked states (and the District of Columbia) by their combined state and local tax rates of the first half of 2016.

Five states do not impose statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of those that do, Louisiana has highest combined sales tax rate at 9.98%. Maryland ranks towards the bottom at 38^th with a combined sales tax rate of 6.00%.

Maryland’s sales tax ranking should be applauded. FSF scholars have been critical of long-standing Maryland tax and regulatory policies for several years, so it’s good to be able to commend this particular element of Maryland policy. However, as the Tax Foundation’s report states, sales taxes are fairly transparent revenue collections because consumers can see their tax burden on the receipt of every purchase they make, while the real impact of income and corporate taxes can be much more complex and murky.

The Tax Foundation published a report earlier this year ranking Maryland with the 7^th highest overall state and local tax burden due to a combination of personal income tax rates, corporate tax rates, and “sin” tax rates. In other words, Maryland’s state and local sales tax rates are not the problem, although this does not mean that they could not be reduced. But in order to improve its general fiscal health and economic climate in a way that fosters growth, Maryland needs to reduce its personal income and corporate tax rates. If it did this, it would improve its ranking among the states with regard its overall tax burden – thereby incentivizing more entrepreneurial activity and economic growth within the state.

Facts & Figures Regarding Maryland’s Tax Rates

On February 29, 2016, the Tax Foundation released a new dataset called “Facts & Figures 2016: How Does Your State Compare?” The dataset is a one-stop-shop for much of the state-level data on tax rates and spending that the Tax Foundation collects and releases over the course of the year.

Here are some interesting facts about Maryland’s tax rates:

• Maryland ranks 7^th highest in the United States with a state and local tax burden of 10.9% of income. That means that the average Maryland resident pays $5,920 in state and local taxes each year. (See FSF President Randolph May’s January 2016 blog for more on this.)

• Maryland ranks 16^th highest in the U.S. with a 6% state sales tax rate. However, Maryland localities do not charge a sales tax, so combining state and local sales tax rates, Maryland ranks 37^th in the country.

• Although Maryland has a flat corporate income tax rate, it is one of the highest in the country at 8.25%. (Because some states apply a progressive corporate tax rate, there are no rankings for these.)

• Despite low gas prices recently, they could be lower. Maryland adds 32.60 cents in taxes and fees to every gallon purchased within the state. That is the 13^th highest amount in the U.S.

• Maryland imposes relatively high “sin” taxes, which are taxes on items that are considered more or less harmful. Maryland’s $2.00 excise tax rate per 20-pack of cigarettes is the 11^th highest in the country, while its $4.05 excise tax rate per gallon of spirits is 31^st highest in the country. Maryland’s wine tax rate is $1.35 per gallon, which ranks 12^th highest in the country, and its beer tax rate is 9^th in the country at $0.49 per gallon.

• Lastly, Maryland’s cell phone tax rate is a whopping 12.67%. This rate ranks Maryland 14^th highest in the U.S.

During the first year of his term, Governor Larry Hogan did a commendable job of beginning to address unnecessary barriers to economic growth in Maryland, including by reducing over 100 state fees which will save Marylanders an estimated $51 million over five years. Additionally, Governor Hogan’s proposed budget for fiscal year 2017 includes an estimated tax savings of $480 million over the next five years. However, there still is a lot of work to be done towards lowering tax rates, reducing regulatory barriers, and creating a more efficient state government.

Also, see the January 2016 Perspectives from FSF Scholars by FSF President Randolph May and me entitled “Achieving Efficient Government and Regulatory Reform in Maryland.”

New Study Shows States Should Lower Wireless Tax Rates

On November 16, 2015, the Tax Foundation released a new study authored by Scott Mackey and Joseph Henchman showing that consumers are experiencing record high wireless taxes and fees in 2015. Federal, state, and local taxes and fees combined constitute nearly 18 percent of the average U.S. wireless customer’s monthly bill. And while the price of the average wireless bill has been decreasing over the past seven years, the nationwide average tax rate has been climbing quickly.

Among the individual states, Maryland has the 14^th highest wireless tax rate and is significantly above the national average. Although Maryland’s ranking went down slightly from 2014, when it was 13^th among states, nevertheless its combined state and local wireless tax rate went up from 12.37 percent to 12.67 percent. This increase likely will cost Maryland wireless consumers hundreds of thousands of dollars a year on top of the unreasonably high tax burden they already incur.

As I stated in an April 2015 blog, wireless taxes disproportionately impact poor families who rely on wireless devices as their main form of communication and Internet access. Roughly 56 percent of all poor American adults use wireless Internet service as their only connection, therefore high tax rates impose disproportionately burdensome costs on low-income consumers. Taxes on communications and Internet access should be kept as low as possible to push prices to an affordable level so every consumer can get online.

Florida led by example earlier this year and reduced its wireless tax rate. It is time for Maryland and other states, especially but not limited to those above the national average, to reduce taxes to alleviate this burden on wireless consumers.

U.S. Tax Code Is Hurting the Country's Global Competiveness

On September 28 2015, the Tax Foundation released its 2015 International Tax Competitiveness Index (ITCI) and the United States ranks 32^nd out of 34 OECD countries. The ITCI ranks countries based on policies which limit taxation of businesses and investment and seek to raise the most revenue with the fewest economic distortions.

The ITCI says the following regarding the United States’ low score:

There are three main drivers behind the U.S.’s low score. First, it has the highest corporate income tax rate in the OECD at 39 percent (combined marginal federal and state rates). Second, it is one of the few countries in the OECD that does not have a territorial tax system, which would exempt foreign profits earned by domestic corporations from domestic taxation. Finally, the United States loses points for having a relatively high, progressive individual income tax (combined top rate of 48.6 percent) that taxes both dividends and capital gains, albeit at a reduced rate.

The United States was unable to improve from its 2014 ITIC score. This is likely because the U.S. tax code has remained fairly unchanged since the Tax Reform Act of 1986, when Congress reduced the top marginal corporate income tax rate from 46 percent to 34 percent. Since then, many OECD countries have lowered their own rates, reducing the OECD average corporate tax rates from 47.5 percent in the early 1980s to around 25 percent today. The U.S. government actually raised the top marginal corporate rate to 35 percent in 1993, giving the U.S. the highest corporate income tax rate in the industrialized world.

It is important that Congress use the ITCI to understand and address why many U.S. companies have moved their headquarters abroad. Job creation is essential for a growing economy, and lower tax rates and a competitive tax code would allow for entrepreneurs and businesses to invest in new opportunities. Lowering U.S. tax rates, especially the corporate rate, would not only lead to more jobs and higher incomes. Consumers also would pay lower prices as the U.S. expands trade around the globe.

New Study Shows Same Results Regarding Maryland’s Poor Business Tax Climate

The Tax Foundation released its 2015 State Business Tax Climate Index on Tuesday. Unfortunately, Maryland has not improved its ranking since the 2014 index came out. (See this press release.)

Maryland ranks 40th in overall business tax climate for the second year in a row. The index also ranks Maryland at 16th in corporate tax structure, 45th in individual income tax structure, 8th in sales tax structure, 41st in property tax structure, and 21st in unemployment insurance tax structure.

Free State Foundation scholars have written many times in the past, including several times this year, about how Maryland’s perennially high tax rates have led to businesses and residents moving out of the state (see here, here, and here). The Tax Foundation’s 2015 index provides additional evidence for why businesses might leave the state as Maryland’s neighboring states (Virginia, West Virginia, Delaware, and Pennsylvania) all rank higher. (See the chart below.)

Taken from a previous FSF blog:

“It is not just businesses possibly migrating into Virginia or other neighboring states that should be of concern. Businesses that remain in Maryland could be operating more efficiently if [tax rates] were lower.”

It is important that Maryland’s governor and legislators act to lower tax rates across the board. This would attract new businesses and encourage entrepreneurial activity and innovation – and serve to retain businesses that otherwise might move away from Maryland. These changes to the tax code would quickly improve Maryland’s business climate and, in doing so, stimulate more start-up businesses, skilled employees, investment, and consumer spending.