Maryland Senate Approves Income Tax Hike

 
 
March 19, 2012

Last Thursday, the Maryland Senate voted 26-20 to include a new income tax plan in their budget which would raise taxes on all income above $3,000. Below are the proposed rate changes:

Proposed Maryland Income Tax Rates for Single Filers

Bracket

Current Rate

Proposed Rate

$1-$1,000

2%

2%

$1,001-$2,000

3%

3%

$2,001-$3,000

4%

4%

$3,001-$25,000

4.75%

4.9%

$25,001-$75,000

--

4.95%

$75,001-$150,000

--

5%

$150,001-$300,000

5%

5.25%

$300,001-$500,000

5.25%

5.5%

$500,001-up

5.5%

5.75%

Somehow, this proposal has managed to get some Republicans and Democrats voicing similar objections. The Washington Examiner quotes Del. Jolene Ivey, D-Prince George's as saying "It's just not possible. People can't withstand that kind of assault on their wallets." Sen. David Brinkley, R-Frederick County added, "Karl Marx would be proud."

While the general level of taxation is fundamentally a balancing act between how many government services people want and how many they are willing to pay for, there are steadfast principles that are helpful to follow when states "must" raise taxes. Maryland's latest episode is indicative of an improper understanding of these principles, and merely the continuation of the last half decade of gradually corrupting its tax code.

In 2007, Maryland's income tax system had the following brackets:

Maryland Individual Income Tax Rates for Single Filers, 2007

Bracket

Rate

$1-$1,000

2%

$1,000-$2,000

3%

$2,000-$3,000

4%

$3,000-up

4.75%

As you can see by comparing the 2007 rates with the most recent proposal, Maryland has in the last few years trended toward an income tax system that tilts the burden disproportionately toward high-income earners. This practice stalls economic growth and investment activity, and violates the principle of neutrality.

Further, as evidenced by California, states that rely more on higher income to finance their budgets can have problems with revenue stability during economic contractions. Higher income earners are generally businesses, which have a revenue stream that ebbs and flows with business cycles.

In general, Marylanders should be wary of a tax code that attempts to pick winners and losers out in the economy; and instead choose one that taxes everyone at the same low rate.

More on Maryland here.

Follow Scott Drenkard on Twitter @ScottDrenkard.

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