Nearly every Marylander who made enough money to pay taxes this year would pay more under a spending plan that passed the Senate on Thursday. It sets up a showdown with the House of Delegates, where Democrats want tax increases, too, but ones focused solely on six-figure earners.
Maryland Democrats’ quest to close at least half of a $1 billion structural deficit while maintaining spending on education and other party priorities has for weeks left little doubt that lawmakers would approve the state’s first major tax increase since the start of the recession.
But what form the tax package would have to take to clear both chambers of the General Assembly only began to come into focus with Thursday’s vote.
Senate Democrats, who initially rebuffed a proposal by Gov. Martin O’Malley (D) that would target tax increases on those making more than $100,000, were forced to change course to win over the most liberal members of their caucus.
The Senate plan for an across-the-board income tax increase was amended in the final hours before a series of votes late Wednesday and early Thursday to include a more aggressive method for counting taxes paid by those making more than $500,000.
The proposal elicited charges of class warfare from Republicans, and even prompted nearly a quarter of the chamber’s Democrats — mostly those from moderate districts — to break ranks and vote against the plan.
“You may dislike and despise millionaires,” said Sen. Richard F. Colburn (R-Dorchester) in the direction of Democratic lawmakers on floor of the Senate. “But here in the People’s Republic of Maryland, we are recovering from a recession, [and yet] we want to increase taxes.”
Colburn’s comments followed a series of remarks from Republicans equating Maryland Democrats with socialists and communists, a rare instance in which the bitter tone of presidential election-year politics permeated the normally genteel state Senate.
“Is it wrong to have people who make more to pay a little more? Is it radical? Not at all,” Sen. Paul G. Pinsky (D-Prince George’s), shot back during another exchange. “It’s tax fairness. It’s justice.”
Under the $35.9 billion budget, which passed 26 to 20, most Marylanders would pay a quarter-percentage point more in income taxes, which would translate into an additional $65 to $200 annually for most residents.
Budget analysts said the plan would raise more than $440 million in additional tax revenue in the budget year beginning in July — accounting for the lion’s share of $572 million in permanent fixes to close the state’s shortfall.
Marylanders making more than a half-million dollars would also pay a new flat tax.
Unlike the state’s current graduated income tax — in which the higher rate would have applied only to earnings above $300,000 — a new top rate of 5.75 percent would apply to every dollar earned for those making over a half-million dollars.
With county income taxes, the combined state-local rate for those Marylanders would rise to 8.95 percent.
The difference between those making $500,000 and $500,001 would be stark, analysts said, with those a dollar above the cutoff paying thousands of dollars more annually.
Senators from Montgomery County and Baltimore were among those championing the plan. They cast the flat-tax approach as a smart plan that maintains a commitment to education and doubles down on investing in public works to create jobs.
Analysts said the provision would allow the state to collect an additional $30 million or more annually from the nearly 18,000 Marylanders who report income higher than a half-million dollars.
A large share of the money would be divvied among local governments, which have been hit hard by reductions in state transportation aid. Several million dollars would also be earmarked for replacing or renovating aging schools.
The move could provide an area of compromise in the House, where Democratic leaders remain more supportive of a tax approach that resembles O’Malley’s plan to limit deductions and exemptions for six-figure earners.
Republicans, however, warned that the proposed tax increase reflects a growing divide between areas of Maryland that have flourished with the help of federal funding, and the mostly rural areas that have languished economically during the downturn.
“We’re making tax history here in the name of creating jobs, but what jobs are we creating with the highest tax rate in the union?” said Senate Minority Leader E.J. Pipkin (R-Queen Anne’s). “We are walking into a marketing nightmare with this bill.”
Maryland’s proposed combined rate would be tied with the District for fourth-highest nationwide. But Pipkin said Maryland would be the only state to charge that rate as a flat tax on all earnings. Virginia has a similar top tax bracket of 5.75 percent, but that rate does not apply to the first $17,000 of earnings. The state also does not have local income taxes, which increase the overall rate.
“We had a millionaire’s tax, now we have a half-millionaire’s tax, the next thing we’ll have is a quarter-millionaire’s tax . . . to pay for all this spending,” said Sen. David R Brinkley (R-Frederick) who is challenging U.S. Rep. Roscoe G. Bartlett (R) for his party’s nomination in the new 6th Congressional District.
Senate President Thomas V. Mike Miller Jr. (D-Calvert) said the last-minute amendment targeting high-income earners was a necessary compromise, but he disputed that measure would make Maryland less attractive to business.
Maryland, Miller said, remains “a great place to live. It’s location, location, location.”
“We have a responsibility to give back,” Miller said. If you’ve made a success of your life — if you think money is a success — we have an obligation to do our part for everybody, and I think that’s what this bill does.”
Staff writer Greg Masters contributed to this report.