ANNAPOLIS — Paul Romer praised Maryland lawmakers for offering proposed legislation to tax digital advertising that would help fund public education.
Romer, an economist and 2018 Nobel laureate, said in interview Friday, Jan. 31 called the plan “innovative” and affect mainly two companies — Google and Facebook — that earn about 80 percent of the revenue in the industry.
According to the proposed bill sponsored by Senate President Bill Ferguson and Sen. Thomas V. Mike Miller Jr., it could generate up to $250 million.
Because Maryland lawmakers are proposing a new tax that would be the first of its kind in the nation, Romer said there could be legal challenges.
“These rich people don’t want to pay taxes, so of course they are going to hire lawyers,” he said. “They make billions of dollars every year, so they are going to hire a bunch of lawyers. They are going to spread a bunch of lies. This is just business as usual these days.
“I just think the [lawmakers] need to do stay focused on doing what’s right,” Romer said. “If there’s a court challenge, fine. If the court issues an injunction to stop the tax from being collected, see what the court objected to in the bill [and] write a new bill that goes around those objections and then just keep going. This is going to be a long fight.”
Romer testified in support of the bill Jan. 29 when he visited Annapolis and sat at a table with his father, former Colorado Gov. Roy Romer, Miller and Ferguson.
The bill, which was discussed for about 90 minutes, would tax revenue of internet companies between 2.5 percent to 10 percent on users with a Maryland internet protocol (IP) address. The figures would depend on a company’s annual gross revenue.
If revenue exceeds $1 million, then a company would file a state tax return to outline how much money was generated and to keep a record of the sales.
The state comptroller would administer the tax with gross revenues going toward the education plan. The bill would allow companies to report how much they earned from digital ads.
Romer suggested a modification to the bill to focus solely on how much revenue is generated in the United States and not add on money that comes from outside the country.
The Commission on Innovation and Excellence in Education proposes a $4 billion plan to expand early childhood education, incorporate college and career readiness programs and social services for schools with a high concentration of poverty.
“If we do it right … that is the single best way that we can enhance productivity in the state of Maryland,” Ferguson said. “Building a strong public education will be fundamental to creating that economic grown in the future.”
Some view the legislation as harmful to businesses.
Sen. George Edwards, a Republican who represents Allegheny, Garrett and portions of Washington counties, said the new tax could force some businesses to relocate out of state.
“I think we need to be concerned,” said Edwards, who serves on the committee. “It’s the rich areas of our state … that can afford it. Some parts of the state cannot afford it. We don’t want to drive businesses out of the state of Maryland.”
More than a dozen people lined up to testify against the bill that included representatives with the MDDC Press Association, Maryland Chamber of Commerce and Motion Picture Association.
“We are in support education, but we just don’t think this revenue source is the appropriate way to go,” said Vans Stevenson, senior vice president of governmental affairs for the MPA. “We already pay to the state of Maryland on the gross revenue to advertising earnings. It would be double taxing the same revenue.”
Bill opponents said the legislation discriminately targets larger companies that could eventually pass on higher fees to customers. In addition, they state the bill violates the commerce clause, which permits states from taxing on digital commerce.
“This new tax is an animal,” said Pat Reynolds, senior tax counsel for the D.C.-based Council on State Taxation.
Romer challenged the discriminatory claim, pointing out that Google and Facebook largely monopolize that market.
“The firms are trying to say, ‘Well, we’ve monopolized this industry and now you can’t tax us because that would be discriminatory,’” he said. “That is just absurd.”