State, local taxes rise as U.S. levy falls

Analyses show taxpayers in area to be left with more

Bush effort to stimulate economy

Savings don't mollify some irked by Md. assessments

January 04, 2004|By Larry Carson | Larry Carson,SUN STAFF

Income taxes in Howard County are up by 30 percent. The state's property tax rate increased, as did Anne Arundel County's. Water and sewer rates are rising in most of the region, including Baltimore City and Baltimore, Carroll and Harford counties. And home assessments made their biggest leap in more than 12 years.

But as Marylanders begin preparing 2003 tax returns, they'll discover they will be left with more, not less money, in their pockets -- thanks to federal income tax cuts.

When state and local tax increases are offset by those federal cuts, the bottom line is appealing: A middle-class family of four in the Baltimore area could have more than $3,000 extra in the bank.

Local government officials say pressure for more schools and better roads, the recession and state budget cuts are forcing them to raise taxes as Maryland prepares to confront a $700 million shortfall in the state budget. But that is more than offset by the federal tax relief that took full effect last year, part of a $350 billion economic stimulus package signed into law by President Bush in May.

Although taxpayers often complain about state and local tax increases, they don't typically consider the effect of lower federal taxes.

A Sun review shows that despite increases in local levies, the overall tax burden this year will be significantly lower because of federal reductions. For example, a Howard County family of four earning $100,000 a year and living in a $250,000 house will pay $937 more in state and local taxes this year, but $3,413 less in federal income taxes -- a savings of $2,476.

Under the same circumstances, an Anne Arundel family would come out $3,400 ahead, a Harford family $3,139, a Baltimore County family $3,109, Carroll $2,833, and Baltimore City about $3,000. The survey used federal tax examples based on the standard deduction, provided by the Brookings Institution and the Heritage Foundation, both private Washington think tanks.

The higher a family's income, the bigger federal tax cut it would receive, according to Brookings Institution charts. A family of four with an income of $150,000 would get a $3,827 federal tax break; with a $200,000 income, that increases to $4,918.

The Bush administration has argued that federal income tax cuts have helped stimulate the economy, thus sparking a recovery from the recession, though some Democrats believe that federal deficit spending has had a greater impact. Some Maryland elected officials say the benefits of tax cuts shouldn't be diluted by local and state tax increases.

If people have more money, "they will spend it somewhere. Anytime you have a dollar turning over, the government collects tax on it," said state Sen. J. Lowell Stoltzfus, a Somerset County Republican and Senate minority leader.

"The more tax you take puts a further brake on the economy. Some of us believe that the private sector is the best place for money to grow," he said.

However, some local economists say that raising local taxes won't affect the economy as a whole.

"The question is what is the total tax burden. My sense is that, despite the fact that local governments have been raising taxes, they fail to fully offset the reductions on the federal level. That shows up clearly in retail sales data," said Anirban Basu, an economist who heads Optimal Solutions Group, a private consulting firm.

`Down that black hole'

That there are overall savings doesn't mollify many taxpayers, who are irked by the multiple local increases.

"When you give money to the bureaucracy, it goes down that black hole," said David Boyd, 69, a retired Towson University instructor who helped found Property Taxpayers United, a Baltimore County tax protest group.

Howard residents Warren E. Miller and his wife, Jane, of Woodbine will likely owe about $930 more in local and state taxes this year, even as their federal income tax bill drops roughly $3,400. But the conservative Republican member of Maryland's House of Delegates isn't happy about the trade-off.

"I don't use government services to an extreme," he said, repeating a common rural view that most tax revenues go to densely populated metropolitan areas dominated by Democrats while crowded rural schools and roads wait.

And even the federal tax cuts don't please some anti-tax activists.

"Income I get -- that's earned money," Warren Miller said about federal tax reductions.

Jim Oglethorpe, an activist who helped collect 7,000 signatures last summer to protest Howard County's income tax increase, said he is also worried about the federal deficit. He said he opposes federal tax cuts as much as he does local tax increases.

"What good is it to me if [federal officials] borrow money to give me a tax decrease? They are taking money from my children," he said.

Others feel the tax debate is a symptom, not a cause of the problems they worry about most.

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