The Temporary Nature of Temporary Tax Hikes

It didn’t take long for a Maryland legislator to propose making permanent the temporary tax hike on high-income people.

This morning’s Maryland Reporter carries the story about a plan from Del. Roger Manno (D-Montgomery) that would create a special teacher pension fund and put money into it by making permanent the millionaire tax and by making corporations use combined reporting to figure their tax liabilities.

Most of Maryland’s million-dollar earners live in Del. Manno’s county where they pay a 3.2% local income tax, plus state income tax rates that range up to 6.25%, the so-called millionaires’ tax rate that is due to expire at the end of 2010. The top rate for them in Maryland, then, is 9.45%. Only in California, Hawaii, Oregon, New Jersey and New York City will the highest earners pay a higher tax rate in 2010. Will expiration of Maryland’s rate actually occur at the end of 2010? We’ll have to see if Del. Manno’s proposal gains support.

As Jay Hancock suggests, corporate location decisions are often based on what’s best for the top executives, and the top people at Northrop Grumman might well feel that McLean, Virginia, is just as nice as Montgomery County, MD, for a much lower price. The top tax rate there is 5.75% of taxable income, much lower than Montgomery’s 9.45%. Even the District has a significantly lower top rate, 8.5%.