Maryland Assembly Debates Income Tax Increases

Higher Rates Would Hit Large Number of Households

Washington, D.C., May 15, 2012—Legislators in Maryland, currently meeting in a special session of the General Assembly, are poised to approve a slate of tax increases, including increased income tax rates on those earning more than $100,000 a year. Lawmakers are also considering an increase in the sales tax, according to a new study by the Tax Foundation.

"When the regular session ended without a new revenue deal, many onlookers feverishly decried the austerity of the ‘doomsday’ budget that took effect instead, which would cut $500 million in expenses over the next year," said Tax Foundation economist Scott Drenkard. "However, these doomsday cuts are actually applied to planned spending increases, so that even under this scenario the budget will still increase by $700 million."

An income tax proposal was put forward yesterday which would increase rates for singles earning above $100,000 and for joint filers earning above $150,000. This plan also phases out the exemption more aggressively than the current tax system, meaning that more income from high-income filers will be taxed, resulting in higher effective rates. A dual-earner, two child family with $250,000 in federal adjusted income living in Maryland would pay $989 more in state income taxes.

Another proposal that was floated in the regular session that may find its way into the special session is a one percent sales tax increase from 6 percent to 7 percent. If passed, the sales tax increase would tie Maryland for the second highest statewide sales tax rate in the country. It would also move Maryland out of step with its neighbors, particularly Delaware, which has no sales tax.

Maryland’s income tax increase proposal fails to meet the criteria of sound tax policy. By opting to raise taxes on high-income earners, the proposal seeks to raise taxes in a politically expedient way, but one which will have distortive long-term effects. If a sales tax increase re-emerges as proposal, this too will make Maryland less competitive among its neighbors and in the nation.

Tax Foundation Fiscal Fact No. 301, “Maryland Considers Proposal to Extend ‘Millionaires Tax’ to $100,000 Income Level” by Scott Drenkard is available online.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.