Franchot Offers Bleak Assessment of Economy
FOR IMMEDIATE RELEASE
Calls for repeal of Computer Services Tax in State of the Treasury Speech
Bethesda, MD (January 18, 2008) - Emphasizing his independence and prudent fiscal stewardship, Maryland Comptroller Peter Franchot today offered a bleak assessment of the State's economic outlook, urged fiscal restraint and called for the repeal of the recently enacted sales tax on computer services. Fulfilling his constitutional mandate to report to the General Assembly on the financial health of the State, the Comptroller spoke to an audience of Maryland business, civic and political leaders in downtown Bethesda and warned of the negative impact the recently enacted tax package and a shaky economy could have on Maryland's families.
"It is no secret that the U.S. and Maryland economies enter the New Year on very shaky ground, and the conditions that define our current economic landscape provide cause for serious concern," Franchot said. "Economists are increasingly worried about the prospects of a national recession, and so am I."
The Comptroller noted that the collapse of the subprime mortgage industry has ended the most sustained housing boom of this generation, destabilized the Dow Jones and other U.S. financial markets, and has driven the U.S. economy into a period of profound uncertainty. In addition, U.S. and Maryland foreclosure proceedings recently rose to an all-time high. It has also been reported that housing construction fell in November by nearly four percent, with single-family home construction falling to its lowest levels in over 16 years. Earlier this week, the Commerce Department reported that U.S. retail sales actually declined in the month of December, thus capping the worst year in that sector since 2002.
The Comptroller also spoke out against the recently passed computer sales tax as an attack on the state's knowledge-based economy and called for its repeal before damage was permanently done to Maryland's information technology community.
"This technology tax, if allowed to stand, will erode Maryland's competitive advantage in the Knowledge-based economy. The computer services tax will take a disproportionate toll on those small and independently-owned businesses that are the backbone of strong communities," said Comptroller Franchot. "The last thing we need is another tax increase, especially one that will undermine our Knowledge-based economy and damage our long-term economic success."
During the speech, the Comptroller reviewed many of the new initiatives undertaken by the Office and highlighted many of the successes in 2007.
"During this past year, we have worked aggressively to reward those of you who faithfully pay your taxes by finding - and collecting - from those who do not," said Comptroller Franchot. "For example, last June, we launched a unique partnership with the U.S. Treasury Department that allows us to intercept federal vendor payments to satisfy state income tax liabilities...and vice-versa. This new "federal vendor offset" program - the very first of its kind in the nation - will bring in more than $20 million in the first year alone, and will ultimately allow us to recover millions in unpaid taxes owed to the State of Maryland, and level the playing field for those vendors who are currently playing by the rules."
Other highlights include:
Led the successful effort to disallow the 'captive' Real Estate Investment Trusts (REITs) deduction while working aggressively to identify and eliminate other tax avoidance efforts.
Fought to expand opportunity for minority and women owned businesses through the State of Maryland's Minority Business Enterprise (MBE) program.
Partnered with the Maryland Department of Agriculture in a year-long study to verify that gas is being stored at proper temperatures, as required by law. These quality controls will ensure that consumers will get a true gallon of gasoline for the dollar.
Worked vigorously to keep more than 50,000 packs of untaxed cigarettes and almost $175,000 worth of illegal beer, wine and distilled spirits off of our streets.
Collected over $1.4 million in delinquent sales and use taxes.
Streamlined the tax payment process through new online customer service innovations, such as Bill Pay.
Promoted the use of 'green' technology in public buildings and state vehicles as a way to save taxpayer money and protect Maryland's natural resources.
Established an Economic Advisory Panel, consisting of business leaders across the State, to advise the Board of Revenue Estimates on economic conditions that will affect revenue performance in the near-term future.
Worked with Treasurer Nancy Kopp and local educators to expand public awareness of the College Savings Plans of Maryland.
Spearheaded successful effort to diversify the State Retirement Agency's investment portfolio in order to maximize investment returns and reduce risk exposure.
Promoting Sound Economic Stewardship
Acting in his role as the state's chief fiscal officer, Comptroller Franchot also focused on the uncertain economic climate that is affecting, not just the Maryland economy, but the national and global economies as well.
Comptroller Franchot urged the State to focus its economic growth strategies on high paying, high quality industries such as the life sciences.
"A State that was once defined by its billowing smokestacks and industrial assembly lines is powered today by the microscope and the microchip, and we are the better for it," said Comptroller Franchot. "The work that is being done today in research and testing laboratories across this State is redefining the limits of human understanding, and will ultimately save and improve countless lives. It has helped make Maryland the wealthiest state in the union without further degrading our open spaces or polluting the Bay."
He also cautioned against relying on future funding from unreliable and corrosive sources such as slot machines and expanded gambling.
"It is hard to believe that the great State of Maryland stands one step away from opening its door to the national gambling industry, and setting us on an economic course that is neither sound nor fiscally prudent," said Comptroller Franchot. "It has been proven, in state after state after state, that slot machines offer nothing more than false hope to desperate communities. They have destroyed families through addiction, bankruptcies and crime, and have left governments scrambling to cover their enormous social costs by any means necessary."
Looking to the future
Reemphasizing his commitment to ramp up the Comptroller's Office, Comptroller Franchot unveiled several goals for the upcoming year, including implementation of a new tax gap initiative that could bring in tens of millions of new tax revenue annually.
"Looking forward to 2008 and beyond, I will be asking Governor O'Malley and our legislative leaders to support one of the most comprehensive tax compliance initiatives of recent years. Through our 'Tax Fairness Initiative,' we will bring our current tax collection technology into the 21st century, and make it harder for tax evaders to undermine our State's financing system. We will place additional auditors in the field and will be able to attract and retain capable professionals by offering them a reasonable salary," said the Comptroller.
Over the next four years, the Tax Fairness Initiative will generate $200 million in revenue, and once fully in place it will generate as much as $100 million every year. This is revenue that is currently owed the State, but is being sheltered or otherwise not being paid, a situation which hurts every Marylander because of the fundamental lack of fairness and the stress it puts on our State's finances. The Comptroller's additional goals for 2008 include:
Level the playing field for law-abiding citizens and business by aggressively enforcing compliance with the tax laws of the State.
Continue to promote a statewide vision for the life sciences industry as the long-term economic engine for Maryland.
Work with a broad grassroots coalition to repeal Maryland's tax on computer services, which will undermine our State's competitive edge on the Knowledge-based economy and sends the wrong message about our business climate.
Work with a broad grassroots coalition to defeat the slots referendum, which represents a step backward for our state and diminishes our standing as a leader in the Knowledge-based economy.
Pursue legislation to enact new initiative which would collect up to $100 million annually in unpaid taxes by modernizing the agency's tax collection system, hiring additional auditors, and attracting and retaining the most qualified tax collectors.
Work with partners on the Board of Public Works to ensure that the state meets its stated goal of 25 percent MBE participation.
Work with Governor O'Malley, Treasurer Kopp and Natural Resources Secretary John Griffin to implement a more balanced and systematic approach to investing Program Open Space (POS) dollars.
To read the full version of the Comptroller's State of the Treasury Address, please log on to the Comptroller's website at www.marylandtaxes.com.
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Contact: Joe Shapiro, 410-260-7305, office; 443-871-2244, cell
http://marylandtaxes.com/publications/nr/current/pr03.asp
