I am William J. Skinner, the president of the Maryland Taxpayers Association for the past three and a half years, and a resident of Montgomery County, in Legislative District 15. I speak on behalf of the Board of Directors of MTA who adopted its TOP TEN TAX Policy Positions late in 1999 for this Session of the General Assembly.
One of our TOP TEN TAX Policy Positions is to exempt active duty enlisted military personnel from the Maryland Income Tax. When we put this list of positions out, we were pleased to find that Delegate Jean Cryor and a bipartisan list of co-sponsors of over twenty members are supporting this bill.
You may be familiar with the fact that military pay has lagged behind the estimated 7.25% personal income growth that the Department of Legislative Services says that that average Marylander has received in past years and will receive this next fiscal year. In fact, people over the whole country are behind Marylanders in personal income growth as the Congress determined that the average American would receive 4.3% more next year when it considered the military pay bill that gave raises last month (1) and will give another portion in July. Congress thought it would boost the military ahead by giving our soldiers and sailors, and others, a raise of 4.8%.
The Wall Street Journal reported last month (Jan. 7, 2000) that the U.S. Army fired its public relations firm for failing in its recruitment efforts to come up with 80,000 new recruits for our 500,000 person army. The effort only brought in about 6,300. The economy is growing and there are many jobs out there for military eligible persons to obtain. There is no secret that many military people have been seriously affected by recent efforts to become world policemen. Recruitment is getting more difficult. The Army is switching from a standard advertising contract to a performance based contract.
Perhaps you have read about our parts supply problems in the Air Force and the Navy. There have been plenty of TV serials, like the popular JAG show, that demonstrate the needs for Navy parts and supplies. Some of you will remember the helicopter supply problems in the Kosovo deployment and in other instances during the past few years. Two of our ten Army divisions were not ready for battle in the past few months, one of these stationed in Germany. So there are serious problems and the White House is finally recognizing the need to fix some of the shortages.
America needs a proud and ready military force to deter aggressors and to be able to defend our national interests. A better paid military will be more comfortable in getting ready to do its various tasks. America needs a military force that its citizens respect and appreciate.
While there are many reasons you should support exemption of military pay from the Maryland Income Tax, let me list just a few:
Send a strong message that we back our troops;
We are placing our youth in harms way, but still insisting that they pay taxes to Annapolis;
Some lower ranking enlisted men and women, with families, will qualify for food stamps;
Other states do not tax military personnel with an income tax – first, there are states without an income tax at all, such as Flordia and Texas; second, there are states that have made conscious decisions to not tax military the same as the rest of us; and
This tax exemption will not cost us much and we have the surplus that allows us to do it.
Now, let me explain in more detail.
Strong Message
The Congress has not moved the military pay ahead far enough to stay ahead of Maryland’s personal income growth. By removing the Maryland Income Tax from the checkbook burden on our troops, we will be giving them an economic shot in the arm that they cannot fail to recognize and appreciate. An E-1 to E-6 person is going to notice getting the benefits of $75 to $170 a month reduction in withholding.
Government Greed
By taxing military personnel on the same basis as other citizens, we emphasize that Maryland does not place a priority on military service; it says that we are more interested in what they can pay government, than what they can do for government. This lack of recognition must be stopped. I have been told stories about Maryland youth who are stationed in other states, talking to parents about this and saying, "Dad, I don’t live in Maryland, I don’t use the roads in Maryland, and I do not get any services from Maryland, so why do I have to pay Maryland?" Good question! And he should not have to ask this.
Food Stamps
Military personnel are eligible for food stamps.(2) There are probably not a lot of them collecting the stamps. Exact data is not available, but extrapolating from a 1995 survey of five states, there are about 1 % of the force getting food stamps.(3) The recent pay increase may not change this picture much. The Pentagon is looking into the numbers again, the presidential politicians are claiming they can fix it, and much lip service is being given to the problem.
Other States
Any state without an income tax does not tax military with such a tax. When Maryland boys and girls are ordered to these states, there is no blaming them for moving their residence to the state that does not tax them. This is simply smart. This would include Texas, Florida, Arizona, and other states.
States like West Virginia and New York have specifically dealt with the problem and made a conscious decision to favor military personnel with an exemption or exclusion. In the case of West
Virginia "a member of the Armed Forces who is domiciled outside West Virginia is considered to be a non-resident of West Virginia for income tax purposes; therefore his military compensation is not taxable to West Virginia even though he is stationed in West Virginia and maintains a permanent place of abode therein." (4)
Pennsylvania has determined military pay received for service outside the state is not taxable as compensation. Military personnel are instructed to deduct such compensation from their W-2 and file an explanation and a copy of their military orders.(5)
In New York, military pay is taxed, except for those who were prisoners of war or missing in action in Vietnam. Military serving in combat zones or hazardous duty area and their spouses receive time to file taxes and exemptions from penalties and interest. Combat zone pay is exempt from New York State, New York City, and Yonkers the same as Federal pay. New York defined the following conflicts as combat zones: Operation Desert Shield/Desert Storm/Desert Fox, Bosnia, Herzogovina, Croatia, Macedonia, Operation Joint Endeavor, or Operation Constant Guard. New York also exempts hazardous duty in Operation Allied Force, Republic of Yugoslavia (Serbia/Montenegro), Albania, the Adriatic Sea, and the northern Ionian Sea.
New York State has a twelve page booklet of instructions for military personnel to deal with income tax issues(6); Pennsylvania as I mentioned earlier has given some thought to military pay issues.
By contrast, Maryland has only a couple of pages in the State & Local Tax Forms & Instructions booklet to explain what the tax implications are for our Maryland citizens. The fact that Maryland has not looked at income taxes like New York and Pennsylvania is bound to be interpreted as a lack of interest and support of our Maryland service men and women. Your taking action to exempt all military pay will overcome this completely.
In researching this issue, I discovered that some Maryland military personnel may not be taking advantage of the $15,000 overseas exemption, but this cannot be confirmed. Exempting all military pay would eliminate this failure to take advantage of the present overseas exemption and make it easier for military personnel.
Dollar Costs
According to the recent DLS Fiscal Note, the cost of this bill is only $15.9 million in FY2001 to $17.9 million in FY2005. This is a small price to show genuine support our volunteers in the Armed Forces from our State and to give them a big thank you for representing all of us in their work to make this a safe world, and to defend our State.
While the exact bill is not cross-filed in the Senate, there is S.B. 490 which is a partial exemption of military pay that is earned in any location, rather than limiting the exemption to overseas pay. And there is also a bill to exempt military retirement income from income tax, but we call your attention to S.B. 285 to exempt income to all persons over 65 or disabled as a way to deal with retirement. Therefore, there is reason to believe that the differences could be worked out between the two houses if you pass this bill.
Maryland has a surplus of funds because of improvident tax rates on Taxpayers. This money should be returned to the people who paid it, but recognizing the unhappiness that is placed upon the General Assembly and Governor in doing this, MTA has to recognize top priorities and request that you take care of "First things, First." S.B. 490 and H.B. 171 is such a "first thing," for without a strong military force, we could be nothing. This principle is one you must remember.
The Maryland Taxpayers Association looks at enlisted military personnel as valuable assets that the State should protect. The State should do its share of recruiting, recognizing, and rewarding our citizens who serve our country. MTA appreciates and complements the Delegates who sponsor this legislation for their ability to know a "first thing."
S.B. 490, or preferably, H.B. 171, is a way for the General Assembly to achieve some fairness and some parity with other states on this important issue. Maryland cannot afford to continue neglecting one of our most important government functions. You should pass this bill overwhelmingly and continue searching for high priority ways to make Maryland a better place to live.
Footnotes:
1) Monthly Basic Pay Table, effective 1 January 2000, available on Pentagon WEB
2) U.S.Department of Agriculture, Food Stamp Program, <http://www.fns.usda.gov/fsp/charts/incomechart.htm>
3) Report to Congress, Food Stamp Usage in the Military, January 16, 1996, Directorate of Compensation, OASD FMP (Military Personnel Policy)
4) Resident Forms and Instructions, 1999, p. 8, West Virginia State Tax Department
5) Q & A, Rev-612(11-98), Pennsylvania, <www.revenue.state.pa.us/caq/rec-612.htm>
6) New York State Income Tax Information for Military Personnel and Veterans, For Tax Year 1999, Publication 361, 11/99.