Ire over income tax plan to get louder Monday

Plan spares 84 percent of earners, but outrage expected

May 13, 2012|By Michael Dresser and Annie Linskey, The Baltimore Sun

A Maryland family making more than $175,000 will pay at least $254 more in income taxes this year under a revenue-raising plan the Maryland General Assembly is expected to take up when it convenes for special session on Monday.

The same family of joint tax filers with two children reporting more than $1.1 million in gross income would pay an extra $3,269 — a larger hit to the very rich.

The tax proposal would target the state's more affluent — pleasing liberals because it spares everyone in the lowest tax brackets and ensures that education and other programs won't be cut. Conservatives, however, warn it would turn away wealthy residents and hurt small businesses.

By many mathematical measures — dollar amounts, percentage increases and relative size — the $247 million tax plan agreed to by Gov. Martin O'Malley and top legislative leaders is relatively small. But politically, there is no such thing as a small tax increase.

About 16 percent of the state's earners would be affected.

"It might not seem like a lot," said Gene Curran, president of Victory Realty Group, a real estate investment firm in Baltimore, "but when you put together all of the fee increases there is a true impact." Curran didn't want to share his salary, but said his family of five would feel the pinch.

But Jack Kinstlinger, chairman emeritus of KCI Technologies in Sparks, said the extra $500 or so he'd pay in combined state and federal taxes is no big deal.

"Wealthy people can afford to pay a little more in taxes. We get so many tax breaks," he said. "The important thing is to have a healthy workforce, a well-educated workforce and a good transportation system."

Republicans complain that it's not just a matter of this tax increase but an accumulation of increases large and small since O'Malley was elected governor in 2006.

Change Maryland, a conservative group, estimates that the General Assembly has raised taxes or fees 20 times since 2007. Recent examples include an alcohol tax increase and higher toll fares.

"This is just one more piece of the puzzle, and they're running out of things to tax," said Larry Hogan, chairman of the advocacy group and a former aide to Republican Gov. Robert L. Ehrlich Jr.

It's a refrain that that will be trumpeted by the GOP in the House and Senate chambers and hollered by protesters from a red-brick plaza in Annapolis Monday. Already a mid-day news conference and an evening rally are scheduled to voice outrage at the tax package.

Business groups also point out that the increase affects companies organized under the tax-code as S corporations — typically small businesses. Revenue from these types of firms are taxed at personal income rates. Roughly 81,000 businesses filed S-corp tax returns in Maryland in 2010, according to data from the state comptroller's office.

"This is a tax is on the very part of our economy that we're hoping helps us grow our way out of the recession," said Kathleen Snyder, CEO of the Maryland Chamber of Commerce. "We are a small business state," Snyder said.

Snyder also said the increases reach too far into the middle class. The proposal would impact "a lot of young professionals that are married," she said. "You are hitting very middle class people. … We may be scaring some of them off."

If the tax package passes, Maryland would have one of the highest income tax rates in the country when you also take into account local "piggy back" income taxes, according to data compiled by the Federation of Tax Administrators. The state's highest rate would be 8.95 percent, so Maryland's wealthy would pay rates on par with Vermont (8.95 percent) New Jersey (8.97 percent) and Iowa (8.98 percent). Hawaii has the highest rate in the country, at 11 percent.

Warren Deschenaux, chief policy analyst for the Department of Legislative Services, acknowledged that the state ranks high in income tax rates, but said the emphasis on the income tax allows Maryland to have lower property taxes than other places. Maryland's total taxation ranks about 10th in the country per capita, Deschenaux said.

If O'Malley, a Democrat, and the legislature's Democratic leadership have their way, the special session will be a carefully choreographed affair with no surprises. Three bills will be introduced, and a series of hearings is already set for Monday.

After a chaotic ending to the legislature's regular session on April 9, when events spun out of control and a budget deal fell apart, the state was left with a so-called Doomsday budget that includes more than $500 million in spending cuts.

House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller, the normally sure-handed presiding officers, have worked since then to restore order and ensure that the special session goes smoothly.

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