The question of whether Marylanders would receive a tax cut this year came down to a fraction of a percentage point — 0.04, to be exact.
That was the difference between the tax rate the state Senate wanted to apply to high earners and the rate that the more progressive House of Delegates said it could accept.
When the two sides couldn’t agree, a proposal for paid sick leave — which proponents had planned to link with the tax-cut bill to generate support from Gov. Larry Hogan (R) — also went by the wayside.
In the end, despite strong support for tax cuts from Hogan, House Speaker Michael E. Busch (D-Anne Arundel) and Senate President Thomas V. Mike Miller Jr. (D-Calvert), the only major tax package to land on Hogan’s desk was a hotly debated $37.5 million credit for the defense and aerospace firm Northrup Grumman, which has a heavy presence in Maryland.
“All of us thought we were this close to real, meaningful tax relief, and unfortunately the speaker of the House and Senate president dropped the ball and failed to get it done,” Hogan said last week, a day after the legislature adjourned. “It’s very frustrating and disappointing.”
Maryland has not enacted widespread tax relief in nearly two decades. But Hogan campaigned on a platform of lowering taxes, and both Busch and Miller seemed on board this year, buoyed by robust state revenue and eager to act on recommendations from a commission they created to help improve the state’s economy. economic climate.
The Senate initially proposed lowering the rate for the highest bracket from its current 5.75 percent to 5.60 percent. That idea was untenable to the House of Delegates, whose Democratic lawmakers have long believed that the state’s 1998 income-tax reduction caused budget deficits and, combined with the 2008 recession, hindered the state’s ability to expand services.
Republicans say that required spending increases also contributed to the deficit issue.
“Our tax package this year was geared toward the middle class, and that’s what our caucus wanted,” said House Majority Leader Anne R. Kaiser (D-Montgomery), one of three delegates assigned to work out a deal with the Senate.
But Senate negotiators insisted on across-the-board rate reductions.
“The Senate felt everyone needs some relief,” said Senate Budget and Taxation Committee Chairman Edward J. Kasemeyer (D-Baltimore County), who led the chamber’s negotiating team. “It’s a difference in fundamental philosophies.”
Both chambers offered cuts for middle-income taxpayers, but to varying degrees. The House proposal would have saved $150 a year for households making $150,000, while the Senate’s plan would have reduced taxes by $64 for the same families.
But the House snubbed high earners with its starting offer, approving a tax package with no rate reductions for families earning at least $300,000.
As the end of the session drew closer, House negotiators, all of them Democratic lawmakers taking direction from Busch’s office, eventually budged on the top bracket, offering to trim the rate to 5.69 percent.
The Senate’s team, made up of two Democrats and a Republican, countered with 5.65 percent. But the House didn’t accept the proposal and didn’t counteroffer. Both sides decided they had moved far enough, even though their proposals for high earners were so close that the difference in the amount saved by a family making $300,000 would have been just $120.
The Department of Legislative Services estimated that the Senate’s plan for high earners would reduce state revenue by an extra $30 million, compared with the House proposal. House negotiators said the additional hit concerned them.
“It was tens of millions of dollars of lost revenue, and that’s not so small,” said Del. Jay Walker (D-Prince George’s), who led the House negotiating group.
The House tax package initially included a change that would allow corporations to base their tax rates on sales in Maryland, rather than a combination of sales, property and payroll in the state.
Supporters said the policy would benefit companies with a big presence in the state because many would face a lower tax burden under the “single-sales” method. But some Republicans raised concerns about how the change would affect other businesses, such as large telecommunications firms based in other states.
House lawmakers agreed to drop the single-sales provision during the negotiations with the Senate. Both chambers favored expanding the Earned Income Tax Credit that benefits the working poor, something Hogan had proposed as well.
But as the clock ticked toward midnight on April 11, there were no more efforts to bridge the .04 percent gap in the proposed rates for high earners.
When the annual legislative session ended, the tax-relief proposals were dead — and the much-pushed-for sick leave bill had died along with them.
House lawmakers had approved the sick-leave legislation, which would have made Maryland the fifth state to require most employers to provide the benefit if they have at least 15 workers.
Progressives had pushed hard for the measure, spurred by calls from liberal advocates and the White House.
Many lawmakers said it was understood in Annapolis that the legislation’s best chance of success would come if it was tied to a tax-relief package, so that Hogan — a former small-business man himself — would have to decide whether fulfilling his tax pledge was worth accepting an employee-friendly initiative.
With tax relief sputtering, the sick-leave measure never came up for a vote on the Senate floor.
“It was a given that that was the deal,” Kasemeyer said. “One was going to be contingent upon the other, so that if the governor didn’t sign one, the other didn’t take effect. But we didn’t get far enough to worry about that.”