Correction to This Article
A July 18 A-section article misstated the personal income tax rate imposed by Prince George's County. It is 3.1 percent, not 3.2 percent.

Md. Officials Weigh Overhaul Of Income Tax Rates, Brackets

By John Wagner
Washington Post Staff Writer
Wednesday, July 18, 2007

Maryland's efforts to close a gaping budget shortfall next year could result in higher income taxes for the state's more affluent residents -- and a possible break for those earning less.

Gov. Martin O'Malley (D) and leading lawmakers say they are giving serious consideration to overhauling the state's tax brackets, which are among the flattest in the nation. Everyone with taxable income of more than $3,000 a year pays the same rate.

O'Malley called the structure "patently unfair" this week, saying at a Democratic breakfast in Frederick that Peter Angelos, the wealthy trial lawyer who owns the Baltimore Orioles, should not pay the same rate as "the woman who cleans his office."

"I'm in favor of progressive taxation, where people who make a lot more pay more," O'Malley told reporters recently.

Such a move would bring Maryland's system closer in line with those of other states and the District: The city's top marginal rate begins after $40,000 a year, and West Virginia and Delaware start their top brackets after $60,000. Virginia's tax structure is somewhat flatter, with the top rate kicking in after $17,000.

With Maryland facing a budget shortfall of nearly $1.5 billion next year, collecting more income tax revenue from the wealthy is a relatively appealing option for lawmakers. Plans that have been floated could yield hundreds of millions of dollars.

But some legislators suggest they should also use the opportunity to provide a break to lower-income residents, who could suffer under other possible budget solutions, such as increases in the sales and gas taxes.

"I think this is a real opportunity to set forward a tax policy that is progressive, that doesn't put all of the burden on middle-income families. . . . We're going to look at all of those kinds of options," House Speaker Michael E. Busch (D-Anne Arundel) said.

Senate President Thomas V. Mike Miller Jr. (D-Calvert) has suggested the idea of a temporary surcharge on the state's highest earners.

And in an interview, O'Malley said an income tax cut for some residents would be a possibility. But he offered no specifics, saying "these are all discussions that are ongoing now."

Maryland's income tax structure has seen few changes since 1967, when U.S. median family income was $7,933 a year. One of the last significant changes started a decade ago, when the top marginal rate was gradually cut from 5 percent to 4.75 percent. That rate applies to all Marylanders with taxable incomes of more than $3,000 a year.

Legislative analysts suggest that Maryland's income tax is more progressive than it looks, particularly for lower-income residents, who are eligible for earned-income credits that can ease their tax burden.

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