The governor has floated the idea of eliminating taxes on retirement income as far back as 2014, when he was a little-known Republican candidate seeking an upset in Democratic-dominated Maryland.
Now in his sixth year in office, Hogan is proposing a more modest but nonetheless sweeping tax break: eliminating all income taxes for retirees who earn less than $50,000 per year and cutting tax bills by as much as half for those who earn $100,000 or less.
The legislation would take effect next year, if approved. But it faces uncertain prospects in the General Assembly.
Hogan told reporters in Annapolis that the proposal was a first step toward his goal of eliminating all taxes on retirement income.
The plan, he said, would cost state taxpayers $1 billion over the next five years.
The governor pitched it a day after legislative analysts warned that his proposed budget set a course for dramatic cuts, with the state projected to take in $3.7 billion less than it was scheduled to spend over the next five years.
“We’re all sympathetic to people on a fixed income,” said House Majority Leader Eric G. Luedtke (D-Montgomery). “But I’d like to know how the governor plans to pay for it.”
Hogan did not directly answer a reporter’s question about that. Instead, he said he did not include money for it in his new budget proposal because he feared the Democratic-dominated General Assembly would vote down his bill and repurpose the money for something else.
Hogan has had limited success persuading Democratic lawmakers to embrace his agenda, and some of his marquee proposals, such as legislative redistricting, have not passed.
Leading Democrats, meanwhile, have pledged to pass their own costly proposal this year. Their sweeping overhaul of public schools, known as the Kirwan recommendations, would cost $4 billion a year when fully implemented. Lawmakers have yet to unveil their plan to pay for it, but Senate President Bill Ferguson (D-Baltimore City) has proposed a first-in-the-nation tax on targeted digital ads to help pay the tab.
Maryland already exempts from taxation up to the first $30,000 of income from pensions and 401(k) accounts. Military members, first responders and corrections officers can exempt more of their retirement income, and the state does not tax most Social Security income. These exemptions cost $400 million a year, state budget documents show.
Hogan aides said the governor’s plan would allow retirees to choose whether to use the existing tax breaks or the new ones to create a lower tax tab.
In pitching his tax break, Hogan noted that at least once before he’s convinced Democrats to go along with one of his tax relief plans, the 2015 decision to change a storm-water management fee critics dubbed the “rain tax.”
He also noted the tax plan was much larger than any of his previous proposals: “We knew that we couldn’t get a bill of the size we’re announcing today.”
Hogan said an exodus of retirees to low-tax states was a key impetus for his decision to launch the nonprofit Change Maryland and seek public office so he could change tax policy to keep more retirees here.
“It broke my heart,” Hogan said Thursday. “It’s why I ran for governor. I pledged that if I was elected, I would do everything in my power to put Maryland on a better path.”