O'Malley tax starts with rich in middle

September 30, 2007|By JAY HANCOCK

Tax increases aimed at Maryland households making more than $200,000 will:

A. Hurt middle-class families already squeezed by big mortgages and high energy prices.

B. Affect only upper-income families who can more easily afford a bigger government contribution.

Which one you believe probably determines what you think of Gov. Martin O'Malley's plan for Maryland's biggest income-tax change in a decade. In fact, the answer is Both of the Above, which blares messages about social class, how we see ourselves and the pros and cons of O'Malley's proposal.

The plan would hit individuals with taxable income above $157,200 and married couples with taxable income above $214,100, but that's after deductions for mortgage interest, exemptions for kids and so forth.

In plain language, only households earning over $200,000 need to worry much about an O'Malley income tax increase, and even many of them would be spared.

Gauging strictly by income, in no universe outside maybe Palm Beach, Fla., is household income above $200,000 "middle class." Fewer than 6 percent of Maryland's households took home that much money last year, according to the U.S. Census Bureau, and we're the richest state in the nation.

But several times this month, people have complained to me that O'Malley would hurt the middle class - and they're not thinking about his plan to raise the sales tax, which really would. They're talking about income tax - arguing that a household in which one spouse makes $160,000 as a middle manager and the other makes $65,000 as a schoolteacher is a typical, striving American family worried about saving for retirement and paying for kids' college.

How people judge

"We all say we're middle class," says Reeve Vanneman, a sociologist at the University of Maryland, College Park who has studied "income stratification" for decades. "I would bet that if you ask those folks they would think of themselves as middle class. A $200,000 family can always tell you about the million-dollar family."

Study after study shows people judge status not by absolute wealth or prestige but by comparing themselves with neighbors. A Columbia family making $225,000 feels middle class because their home and cars look the same as those next door, and they don't spend much time in neighborhoods where families make $35,000.

And in many ways, they are middle class. They don't play polo. They work 50-hour weeks. No Rockefellers in the ancestry. No tiaras on the brow. Mortgage, tax, grocery and car payments vacuum up most of the household dough.

Being a high-income state also means Maryland is a high-priced state. You need to make more to live here, especially if you just arrived from, say, Iowa.

And even then it may not cover all the bills. More than a few six-figure households can't pay off credit-card debt. That's practically the definition of the middle class in America these days - whether you used the MasterCard on a Baume & Mercier watch or groceries.

Professor's view

Paul W. Kingston, a professor at the University of Virginia, argues that class in the United States is an obsolete concept.

"How would you recognize a class if you saw one?" he asks in The Classless Society, and he has a point. A Silicon Valley zillionaire goes to work in blue jeans and a T-shirt, and a guy in a rowhouse has a plasma TV.

Maybe that's why we all think we're middle class; it's hard to tell the difference anymore.

And yet - the family with a $225,000 paycheck enjoys a significantly higher standard of living than the average household. Their neighborhood probably has less crime. Their house and cars are probably nicer. The schools are better.

Strategy not risk-free

In short, the $225,000 household is getting more than most out of all that Maryland has to offer. And now, if O'Malley has his way, it's about to pay more for it.

His is not a risk-free strategy. By definition high-income families are high-consumption families. Raising their taxes by thousands of dollars takes away money to spend in local stores and restaurants, which will hurt the economy.

And you don't want to drive too many well-off residents across the border, which is never far off in this tiny state.

O'Malley would take 6 percent or 6.5 percent of Maryland income past a certain point, and localities already get as much as 3 percent on top. Pennsylvania, with its 3.07 percent flat income tax, looks better all the time, even with local income taxes of up to 1 percent in most places.

Call them upper-middle class. They work hard. They spend hard. They make high incomes to live in a high-cost state. For them, it looks like it's about to get even costlier.

jay.hancock@baltsun.com

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