Democrats who control Maryland’s House of Delegates gave initial approval Thursday night to a spending plan that would raise income taxes on six-figure earners and shift a share of teacher pension costs to counties to help close a $1 billion budget shortfall.
House Speaker Michael E. Busch (D--Anne Arundel) cast the plan as a middle ground between a larger, across-the-board income tax hike endorsed last week by the state Senate, and a plan backed by Gov. Martin O’Malley to limit deductions and exemptions for high-income earners.
The House is expected to give final approval to its version of the nearly $36 billion spending plan Friday, setting up what could be a tricky effort to work out differences between the Senate and House spending plans next week. The General Assembly is scheduled to adjourn April 9.
Busch said he was looking for a strong vote of support for the budget by Democrats in the House to improve the chamber’s bargaining position with the Senate, where an across-the-board tax hike passed, but with several Democrats voting against it.
The House plan would increase income taxes on single filers with an adjusted gross income of more than $100,000. Under the plan, those residents would see their state income tax rate change from 4.75 percent to 5 percent.
Married couples and other joint filers making above $150,000 would pay more.
The House plan struck the controversial “half millionaire’s tax,” — a flat tax rate of 5.75 percent applied to every dollar earned above $500,000 — that the Senate approved in its plan.
Del. Kumar Barve (D-Montgomery) called the plan an attempt to “minimize the hurt,” saying 87 percent of Maryland taxpayers would not pay more under the plan. Even in “relatively wealthy” Montgomery County, 85 percent of taxpayers would see no change, he said.
“Personally, I consider that to be an accomplishment,” Barve said.
The House plan would generate less than half the $440 million in additional tax revenue that the Senate plan would generate in the budget year beginning in July. But Barve said the exemption changes would generate more than $31.4 million in tax revenue for local governments.
The plan would reduce by a third the amount of personal exemptions allowed for individuals making $100,000 to $125,000 annually, and for families making $150,000 to $175,000. Exemptions would be more than halved for individuals making $125,001 to $150,000 annually, and for families making $175,001 to $200,000. Above those amounts, the House plan would eliminate the baseline exemptions entirely.
While both the House and Senate plans propose sharing responsibility for teacher pensions with counties, the House plan would phase in the shift sooner, in three years instead of four.
The House proposal does not include applying the state sales tax to purchases from Internet retailers that have affiliates in Maryland, a provision contained in the Senate version.
The committee had concerns that Amazon would “litigate the heck out of this issue or they would cut off their in-state affiliates, or in all likelihood both,” said Del. C. William Frick (D-Montgomery), chair of the finance subcommittee.
While both the House and Senate plans would increase the tax on “little cigars” from 15 percent to 70 percent, the House plan would not change the tax on premium cigars. The House plan would, however, tax smokeless tobacco at 50 percent instead of the Senate’s 20 percent.