What fairness requires

November 16, 2007

As House and Senate leaders move to reconcile differences over Gov. Martin O'Malley's ambitious deficit-reduction and spending package, the greatest priority needs to be placed on fairness. Marylanders are willing to pay more for needed government services, but only if the tax increases are equitable.

In terms of the bottom line, the House and Senate are not far apart at all: Both would raise about $1.5 billion in new revenue by 2010. But in terms of fairness, there's a sizable difference: The Senate plan lacks the needed progressivity. The wealthy may fare better under its approach, but working-class families - particularly those living on $100,000 a year or less - are treated far more kindly by the House.

The issue of greatest concern is the proposed change to personal income tax rates. Maryland's existing income tax rate is more or less flat, which means the wealthy pay the same percentage as the average citizen, and that shouldn't be the case.

The House income tax proposal would reduce state and local income taxes for most Maryland residents by $100 or more. The Senate offers some tax breaks, too, but not nearly so much. A household with a net taxable income of $40,000 to $50,000, for example, winds up paying about $33 less - about one-quarter the $131 savings offered under the House plan.

That's a crucial distinction. Democrats in the General Assembly may claim to be standing up for middle-class families, but a now-probable 1-cent increase in the sales tax suggests otherwise. It's by far the leading source of revenue in the tax package, and it hits low- and moderate-income households hardest.

Only a concurrent reduction in the income tax rate for average and low-wage earners (on top of a larger personal exemption) will fully offset it. The House plan would suffice because most households with $50,000 in income don't spend more than $13,100 on taxable goods each year.

Montgomery County senators may be unhappy with the House proposal, but their desire to spare millionaires a few thousand dollars in additional state taxes does them no great honor.

We would not suggest that an income tax break will fully insulate all non-millionaires from the various tax increases needed to offset the projected $1.7 billion deficit. But a recent Department of Legislative Services analysis found that a family with a household income of $40,000 winds up paying only $7 more a year when the House version of the sales, income and car titling taxes are added together.

With all due respect to Montgomery Countians, fairness demands that more be asked of high-income filers. That's why the House position on this important issue should prevail. We urge Mr. O'Malley, House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller to settle for nothing less.

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