O'Malley Plans Major Revamp Of Income Taxes

Under O'Malley's plan, Montgomery residents in the highest bracket would pay a combined state-county rate of 9.7 percent, which County Executive Isiah Leggett (D) said yesterday is "not acceptable."

"We're prepared to do our share and certainly help, but we also have to be fair," he said. "This is asking an awful, awful lot from the taxpayers of Montgomery County."

In 2005, nearly half of the returns from people earning more than $500,000 in Maryland were from Montgomery, according to the comptroller's office.

The combined rate of 9.7 percent would also exceed the current top marginal rates in the region. In Washington, the top rate is 8.5 percent; in Virginia, 5.75 percent; and in Delaware, 5.95 percent.

Maryland would not be alone in imposing higher rates on upper-income earners. California, for example, applies a rate of 10.3 percent on incomes of more than $1 million.

And the opposition from Montgomery is not universal. Past efforts to make Maryland's tax code more progressive have been initiated by Montgomery lawmakers, whose liberal sensibilities are sometimes at odds with the economic interests of some of their constituents.

"Will there be concerns? Undoubtedly, and we're certainly going to have to look at them," said Sen. Richard S. Madaleno Jr. (D-Montgomery). "But I think the majority of the delegation supports the governor and the concept of what he's trying to do here, which is make the tax code more progressive."

Senate President Thomas V. Mike Miller Jr. (D-Calvert) said all areas will have to sacrifice for the state to close the projected $1.7 billion shortfall in the budget for the 2009 fiscal year that starts in July.

"Every jurisdiction needs to contribute something," Miller said.

House Speaker Michael E. Busch (D-Anne Arundel) said that he is willing to hear concerns from all parts of the state. But, he said, "to the governor's credit, he's trying to come up with a comprehensive plan that takes into account the concerns of middle-income and working-class families."

Maryland's income tax structure has undergone few changes since 1967, when the 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 move is considered a source of Maryland's current budget woes.

O'Malley said that he will publicly announce other components of his plan this week and next. An event touting the property tax cut is scheduled this morning in Howard County.

O'Malley aides said yesterday that the reduction in the property tax will disproportionately benefit residents of Montgomery and other wealthy jurisdictions.

O'Malley is pushing legislative leaders to convene for a special session on his plan by early November.

Staff writer Ann E. Marimow contributed to this report.