The tax test

November 02, 2007

With all the complaints about Gov. Martin O'Malley's deficit-reduction plans echoing through the corridors of the State House this week, lawmakers ought to be reminded of the good. High among these is the prospect of lower income taxes for the vast majority of Maryland taxpayers - with even the poorest benefiting from an enhanced earned income tax credit.

This is a critical part of the governor's tax plans, perhaps the most important element, if only because it offsets his proposed 1-cent sales tax increase, a truly regressive source of revenue.

And so it's a little disappointing to hear the usual suspects flail away at Mr. O'Malley's progressive proposal as if all the wealthy were on the verge of exile. Instead of having everyone pay a flat rate of 4.75 percent after the first $3,000 in income, the governor's proposal calls for a head of household to pay 2 percent tax on the first $2,000, 3 percent up to $4,000, 4 percent up to $22,500, 4.75 up to $200,000, 6 percent up to $500,000 and 6.5 percent for those making more than $500,000.

The net result: Only single filers with adjusted gross income over $178,000 or joint filers above $246,000 would pay additional income taxes.

Much of the grumbling about the plan has come from Montgomery County, where much of the higher taxes would be paid - simply because it is home to so many high-wage earners. Montgomery County Executive Isiah Leggett proposed knocking down the top tax rate to 5.5 percent, and even that would be applied only after the first $1 million in income. That's not enough.

Admittedly, the proposed income tax rate is high compared with other states. But that's mostly because of the piggyback rates added by local governments. High income taxes have allowed state and local governments to keep down other forms of taxes - property taxes chief among them. They're simply a better way to finance government - but only if kept sufficiently progressive.

The governor's income tax proposal deserves scrutiny. Certainly, there's legitimate concern about its interaction with the federal alternative minimum tax. But legislators ought not do too much tinkering with efforts to make the rate structure fairer. Working families might net only between $100 and $150 under the O'Malley plan, but that's money they deserve.

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