The proposal is part of O’Malley’s 2013 fiscal year budget proposal, which would reduce tax deductions and exemptions for the roughly 440,000 Maryland residents who earn $100,000 or more each year. If approved, the adjustments would mark the first broad-based tax increase in five years.
O’Malley, a Democrat, said the proposal would allow the state to collect an additional $182 million in taxes, which would be used to fund education initiatives, account for rising teacher pension costs and pay for expanded health care programs for the poor.
“This is not an exercise in popularity, it’s not a matter of greasing the weather vane,” O’Malley said. “It’s a matter of figuring out what are the best decisions that we can make on behalf of the families we serve.”
The plan would cut in half the $2,400 personal exemption for individuals making $100,000 to $125,000 and families making $150,000 to $175,000, as well as cap personal deductions for those same residents at 90 percent of their total income. Deductions would be capped at 80 percent for those earning more than $200,000 a year.
Montgomery County, home to the state’s greatest share of millionaires and other high earners, would benefit from the plan, netting $37.2 million annually in additional tax revenue and other changes to county aid and tax programs. On the other hand, several counties in the Baltimore area could suffer losses of up to $2 million in annual tax revenue.
The Maryland arm of the National Federation of Independent Business has already started lobbying against the proposal, which state director Ellen Valentino said would punish a large percentage of the state’s employers. She pointed to a 2011 Ernst & Young report showing that 93 percent of Maryland businesses are structured as sole proprietorships, partnerships or small corporations, which means the owners file personal income taxes as opposed to corporate income taxes.
“Maryland’s middle-class business owners have been battered in the past several years with higher taxes and a stubborn recession,” Valentino said. “Another tax increase now would be devastating.”