If you earn $500,000 this year in Maryland, you might want to stop there. Earn $1 more and your tax bill could jump by thousands of dollars.
Maryland Senate Democrats in recent weeks moved away from Gov. Martin O’Malley’s (D) proposal to target six-figure earners for tax increases, preferring instead an across-the-board hike to help close a budget shortfall.
But to win support for the spending plan from the Senate’s most liberal members, Democrats late Wednesday changed course and decided to do both.
Under the $35.9 billion budget the Senate approved Thursday on a near party line vote, Marylanders making more than a half-million dollars this year would pay both a quarter percentage point increase on their state income taxes, and a new flat tax at that rate.
Unlike the state s current graduated income tax --in which the higher rate would have applied only to earnings above $300,000 — a new rate of 5.75 percent would apply to every dollar earned for those making over a half million.
With county income taxes, the combined, top state-local rate for those Marylanders would rise to 8.95 percent.
The difference between making $500,000 and $500,001? A couple of thousand dollars annually, state budget analysts said.
Applying the higher rate as a flat tax would collect an additional $30 million or more annually from the nearly 18,000 Marylanders who report income above a half million dollars, analysts said.
The money would be divvied up between local governments, which have been hit hard by reductions in state transportation aid. Several million dollars would also be earmarked for replacing or renovating aging schools.
The move could help cross an ideological divide with the Democrats in House of Delegates, where the party’s caucus is still more supportive of a tax approach that resembles O’Malley’s plan to limit deductions and exemptions for six-figure earners.
Republicans derided the Senate increase as a new “half millionaire’s tax,” a reference to the state’s millionaire’s tax which was approved in 2007, but that has since expired.
“We had a millionaire’s tax, now we have a half millionaire’s tax, the next thing we’ll have is a quarter millionaire’s tax … to pay for all this spending,” said Sen. David R Brinkley (R-Frederick) who is challenging U.S. Rep. Roscoe Bartlett (R) for his party’s nomination in the new 6th Congressional District.
Senate Minority Leader E. J. Pipkin (R-Cecil), blasted the increase, saying it would give the state an unwelcomed distinction of having the highest tax rate on all income. Maryland’s new combined rate would be tied with the District for fourth-highest nationwide. But Pipkin said that Maryland would be the only state to charge that rate as a flat tax on all earnings.
Virginia has a similar top tax bracket of 5.75 percent, but that rate does not apply to the first $17,000 of earnings. The state also does not have local income taxes that increase the overall rate.
“We’re making tax history here in the name of creating jobs, but what jobs are we creating with the highest tax rate in the union?” Pipkin asked. “We are walking into a marketing nightmare with this bill.”
Senate President Thomas V. Mike Miller Jr. (D-Calvert), said the amendment was a necessary compromise to move the budget to the House and that not all members of his caucus were pleased with it.
But several prominent Senate Democrats cast the tax package as a smart plan that maintains the state’s commitment to education and doubles down on investing in public works to create jobs and continue growing the economy.
Near the end of almost eight hours of debate on the spending plan Thursday morning, partisan arguments took on their sharpest tone, with accusations of class warfare that has permeated recent presidential election politics.
“Is it wrong to have people who make more to pay a little more? Is it radical? Not at all” said Sen. Paul Pinsky (D-Prince George’s). “It’s tax fairness; it’s justice.”
“You may dislike and despise millionaires,” said Sen. Richard F. Colburn (R-Dorchester). “But here in the People’s Republic of Maryland, where we are recovering from a recession, we want to increase taxes. Economics 101 tells us you don’t raise taxes during a recession.”