More than 300,000 Maryland residents will pay higher income taxes under a package given final approval by the legislature Wednesday.
The tax increase affects single-filers reporting income in excess of $100,000 and joint-filers reporting more than $150,000 in Maryland, the state with the nation’s highest per-capita income.
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Democratic lawmakers closed ranks behind Gov. Martin O’Malley (D), who argued that his administration needed more money to continue record spending on education.
O’Malley’s tax increases — combined with a move the legislature supported to shift teacher pension costs to counties — will close half of a $1 billion gap that had been forecast for the rest of the decade.
The legislation — passed by the Senate on Tuesday and the House on Wednesday — will also widen the income tax divide between Maryland and Virginia. Maryland’s new top state-local tax bracket will tie the District’s for fourth-highest in the nation, at 8.95 percent. Across the Potomac, the top rate in Virginia is 5.75 percent.
Direct comparisons are tricky because Virginia has local sales taxes and Maryland counties can levy income taxes. But accountants said the difference routinely adds up to thousands of dollars a year on six-figure incomes.
Maryland’s tax package, they said, will add hundreds or thousands of dollars to many residents’ tax bills in the D.C. suburbs.
In an appearance before reporters, O’Malley thanked legislators for making what he said were “the right votes to keep our state moving forward. . . . We have together decided to invest more in the education of our children.”
Despite an agreement among Democratic lawmakers on a similar tax package last month, the measure was never brought to a vote. It collapsed along with a bill to expand gambling and allow a casino to be built in Prince George’s County.
The General Assembly adjourned its annual session April 9 in disarray, having approved a spending plan but not a revenue bill that was widely expected to pass. Without reconvening to approve the tax increases, the spending plan would have required more than $400 million in cuts to schools and state programs beginning July 1.
Cuts to classrooms, libraries and police in Prince George’s would have topped $65 million, boosting the county’s projected shortfall by 50 percent. Montgomery County would have lost more than $41 million, with a similar effect on its budget gap.
Counties and unions for state employees, who will receive a 2 percent raise from the tax increase, praised the legislature after the House of Delegates voted 77 to 60 for the package. Several Democrats joined Republicans in opposing the measure, arguing that the state could have taken money from elsewhere to maintain aid to education and county governments.
On the issue of state competitiveness, O’Malley said the tax increase would put Maryland “ahead of where most states are when addressing budget shortfalls.”
But raising taxes on six-figure earners set a marker amid the national debate about income disparity and how much the wealthy should pay to support government. Maryland’s tax increase will hit many below the $250,000 threshold above which President Obama has sought to impose tax increases on high-income earners.
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