Experts Divided on Md. Tax Package's Effects

By Philip Rucker and Ovetta Wiggins
Washington Post Staff Writers
Tuesday, November 20, 2007

As fiscal experts struggled yesterday to determine the impact of Maryland's new laws to raise $1.4 billion in additional annual revenue, one conclusion was inescapable: Residents who buy new cars, smoke cigarettes and get their computers fixed will be among the hardest hit.

But there was disagreement about whether working families would win or lose from an overhaul of the state's personal income tax structure and an increase in the state sales tax.

Gov. Martin O'Malley (D) and legislative leaders hailed the new laws as a victory for low- and middle-income families, saying the changes make Maryland's fiscal structure more progressive and shift the burden to its wealthiest residents by raising the top income tax rates.

O'Malley said 40 to 45 percent of Maryland taxpayers will see their tax burden remain the same or go down.

"Not only were we able to restore fiscal responsibility so we can present historic investments in education and health care, but we were able to do that in a way that is a lot fairer" to taxpayers, O'Malley said at a bill-signing ceremony yesterday .

But several tax experts said that taken together, the new laws will place an unfair burden on low-income families, who will be hit hardest by increases in the state sales tax, from 5 percent to 6 percent, and tobacco tax, from $1 per pack of cigarettes to $2.

Jeff McLynch, a regional director at the Institute on Taxation and Economic Policy, said working-class residents will bear "a substantial part of the burden" resulting from the laws.

"It's certainly the case that when looked at in isolation, the personal income tax has become more progressive than before," McLynch said. "But it shouldn't be looked at in isolation. It should be looked at with things like the increase in the sales tax rate, the increase in the cigarette tax rate."

The state's nonpartisan Department of Legislative Services could not provide comparative figures yesterday, but said it would release a comprehensive fiscal analysis next week.

Maryland Comptroller Peter Franchot (D), a vocal critic of the special session, said the tax package is "regressive" and "may damage the Maryland economy, which is in a volatile and soft position right now."

Franchot, the state's chief tax collector, said his office is reviewing the laws and will soon release a fiscal analysis as it prepares to implement the new tax measures Jan. 1. He said it is too soon to know the full impact.

"We're still searching for the black box," Franchot said, likening the process to "when a plane crashes and you go to find the black box to get the data."

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