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Some Democratic lawmakers in Maryland are proposing a series of income tax hikes this year, but even the bill’s sponsors acknowledge that winning support from their colleagues is likely to be a long-term effort.
Supporters say lawmakers aim to address the state’s looming budget deficit with a bill that would raise an estimated $1.6 billion annually once the state’s general fund is fully phased in.
Sen. Shelley Hettleman, D-Baltimore, who sponsored the Senate bill, said that even though the bill is unlikely to pass this Congress, supporters want to start laying the groundwork for tax restructuring. Ta.
“I have no illusions that this bill will pass this year,” Hettleman said with a laugh. “But there are important policy issues that we as a Legislature need to consider as we think about how to pay for the services that Marylanders value and need.”
Maryland’s plan would shift the tax burden to high-income earners
Lawmakers want to shift even more of the tax burden from working families to high-income earners and businesses, while relying on tax credits to close income gaps. Other states are making similar moves. Massachusetts passed a law in 2022 that would impose a 4% income tax on people making more than $1 million a year.
Business advocates are concerned that the bill could threaten corporations and small businesses and prevent them from doing business in Maryland.
But aside from the bill’s sponsors, most Maryland officials aren’t going to jump at the chance to raise taxes this election year. Democratic Gov. Wes Moore introduced a balanced fiscal year 2025 budget with no tax increases. This is despite the fact that the state is expected to face a $1.8 billion deficit in 2028 unless it dramatically changes its spending and revenue habits.
Advocates say the deficit could threaten Maryland’s ability to continue to fully fund some of its most important state programs.
“You can see there are looming holes in the budget that need to be addressed. If not, we’re going to have to start cutting things,” said Julie, a Montgomery Democrat who sponsored the House bill.・Congressman Parakovic Carr said.
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Supporters cite the need for funding for health care, education and transportation.
Kari Schmitz of the Maryland Economic Policy Center said health care, education and transportation all depend on state funding. Schmitz said budget deficits could hamper the state’s ability to keep funding flowing to these efforts.
The revenue raised by this bill, known as the Maryland Fair Share of the 2024 Act, is intended to address these concerns. The bill’s primary purpose is to raise income taxes for Maryland residents making more than $250,000 a year.
Schmitz added that the bill would provide tax relief for low-income families by expanding Maryland’s child tax credit. The additional funding would raise the maximum income level allowed, making more people eligible for tax credits.
“This will increase the number of children who will benefit from the credit, which is a very powerful anti-poverty tool,” Schmitz said.
Terry Kavanaugh of SEIU 500, a public sector union, told lawmakers at Wednesday’s Senate bill hearing that the child tax credit supports working families and provides economic relief to those who need it most. He said he was deaf.
Parakovic-Carr said the increased income tax would go into the state’s general fund, and lawmakers would have discretion to decide where to spend the money.
Economic justice advocates are urging lawmakers to consider using that revenue for education. Otherwise, schools could be severely underfunded, said Shamoyah Gardiner, executive director of Maryland Strong Schools, a grassroots education organization. Gardiner said a similar fate could befall Maryland’s Blueprint for the Future, she added. This plan will only be fully funded for the next few years.
Other advocates believe that because these efforts are closely tied to education, lawmakers should use them to support housing affordability and assistance, Schmitz said. Ta. “There is a growing recognition that all of this is interconnected,” Schmitz added.
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Supporters say Maryland’s tax system has been turned upside down
The bottom line for some lawmakers is that the tax system needs restructuring, regardless of where the money is spent.
“Our tax system has been turned upside down. The richest 1 percent of Marylanders, those with annual incomes of $700,300 or more, pay a larger percentage of their income in state and local taxes than other income groups. Not many,” Schmitz said.
Hettleman said the bill is a way to “check and realign the fairness” of Maryland’s tax system and reevaluate the state’s funding programs.
Unlike some other states, the initiative is not called the millionaire tax because the tax increase will affect some high-income earners with incomes of less than $1 million.
Some supporters argue that the impact on tax rates will not be as drastic as one might think. “More people are actually getting tax cuts than tax increases under this bill,” said Christopher Meyer, a research analyst at the Maryland Economic Policy Center.
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The bill would address tax loopholes
Schmitz said the bill also aims to close corporate tax loopholes that allow large companies to avoid paying Maryland income taxes and pay taxes even in places where no corporate income tax is imposed. Stated.
The bill would address this issue by requiring parent companies to file a consolidated tax return that reflects the income of all subsidiaries as one entity for tax purposes.
However, opponents of the bill expressed concerns about the use of this so-called “integrated reporting.”
Leonore Heavey, senior tax advisor for the State Council on Taxation, told lawmakers during a Senate bill hearing that “there is no guarantee that a global integrated reporting requirement would actually increase state revenue, and that it would not provide a steady stream of revenue.” There is certainly nothing that can be produced.”
Other opponents worried that mandating integrated reporting would prevent small businesses from continuing to operate in Maryland.
“Here in Maryland, we are considering tax policies that discourage entrepreneurship and the expansion and even creation of small businesses,” said Mike O’Halloran, Maryland state director for the National Federation of Independent Business.
“The state faces a number of fiscal challenges,” O’Halloran said. “There are a lot of priorities that the current administration and the previous administration have set, and you all now have to deal with how to pay for them. It may be better for the organization to promote this instead.”
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