The Maryland State House in Annapolis. Progressive legislators hope to uncouple the state’s taxation on inheritances from the federal estate tax. (Patrick Semansky/AP)
As Republicans in Congress weigh a dramatic reduction in taxing inheritances left by wealthy Americans, progressive lawmakers in Maryland want to make sure the state does not follow suit.
Maryland Del. Jimmy Tarlau (D-Prince George’s) said he will sponsor a bill in 2018 to exempt only the first $4 million of an estate from state taxes, even as federal lawmakers want to raise the threshold from $5.49 million to $11 million.
It is the latest example of liberal state lawmakers attempting to blunt the impact of a Republican-controlled White House and Congress, and it could create an argument over tax breaks in Annapolis during an election year.
Under current law, Maryland — which has more millionaires per capita than any other state — is supposed to follow federal estate-tax rules beginning in 2019. The state now taxes inheritances greater than $4 million.
Tarlau estimates that raising the exemption level to $11 million could cost Maryland $50 million to $100 million a year. “We need to protect our money for programs like schools, roads, mass transit and tax relief for seniors,” he said.
Previous attempts to uncouple the state exemption from federal policy — by Tarlau and other progressive lawmakers, including state Sen. Richard S. Madaleno Jr. (D-Montgomery), who is running for governor — have stalled in committee.
But with a significant increase in the federal exemption increasingly likely as part of a broad overhaul moving through Congress, Tarlau said he hopes to stir more interest in his bill from the Democratic majority in Annapolis.
State legislators have acted on multiple fronts to repel actions and proposals by Congress and President Trump since his inauguration in January.
Prompted in part by concerns that a repeal of the Obama-era Affordable Care Act would diminish women's access to birth control, Nevada passed a bill requiring insurers to cover a 12-month supply of contraceptives without co-pays, and Massachusetts Gov. Charlie Baker (R) is expected to sign a nearly identical bill that landed on his desk this month. Maryland approved a law this spring to reimburse Planned Parenthood clinics for their services if Congress defunds the organization.
And in response to Trump's vow to crack down on illegal immigration, California Gov. Jerry Brown (D) signed "sanctuary state" legislation last month limiting the extent to which state and local police can cooperate with immigration authorities.
If Tarlau’s estate-tax bill moves forward, it could become an issue for Maryland legislative and gubernatorial candidates in the 2018 elections.
Gov. Larry Hogan (R), a moderate who has distanced himself from Trump and some of the most controversial GOP proposals on Capitol Hill, won the governorship three years ago with an anti-tax message. He has not stated a position on federal plans to expand estate-tax exemptions or, eventually, abolish the tax. His campaign and office spokesmen did not respond to requests for comment on Tarlau’s proposal.
Madaleno, vice chair of the Senate Budget and Taxation Committee and one of eight Democrats seeking to challenge Hogan, said state lawmakers “absolutely” should revisit the estate-tax exemption if Republicans expand the federal cap or abolish the tax.
“When we agreed to this coupling with the federal government, no one saw that high of a threshold,” said Madaleno, who voted against the 2014 legislation that tied the state exemption to federal policy. “I don’t see how it doesn’t become an issue.”
Three other Democrats running for governor, attorney Jim Shea, policy consultant Maya Rockeymoore Cummings and Krishanti Vignarajah, a onetime policy aide to former first lady Michelle Obama, also said they support Tarlau’s proposal.
Rockeymoore Cummings said an expanded exemption would “give huge tax breaks to millionaires on the backs of Maryland families.”
Shea said a higher threshold would “give tax breaks to the supremely wealthy” and that he would “look for additional ways to insulate Maryland families” from Republican tax-cut plans if he wins the governorship.
Other Democratic gubernatorial candidates did not respond to requests for comment.
House Ways and Means Chair Anne R. Kaiser (D-Montgomery) said her panel “can’t make some of these decisions until we see what the federal government will do.”
But she suggested that the state should not allow its exemption threshold to increase past the $5.49 million cap that lawmakers expected when they voted in 2014 to follow federal guidelines.
“We can’t keep changing the goal posts,” she said. “One of our goals of tax policies . . . is to ensure that businesses and individuals can plan from year to year.”
Tarlau said state lawmakers should approve his proposal next year regardless of whether Congress passes a tax overhaul.
“Maryland should have its own decisions in these actions instead of being tied to what’s going on in Washington,” he said.