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GOP's Craig would slash income tax rates

Republican David R. Craig said Tuesday that he would push to cut the state income tax rate for Maryland's wealthiest residents by more than 20 percent during his first year as governor.

Craig, one of four GOP candidates running in June's primary, said his plan would put Maryland on a course to eliminate its income tax entirely during his second term while cutting spending by 3 percent a year. He said such a move would stimulate economic growth and halt a loss of population to states with lower taxes.

"We must restore Maryland to the way it was and we need a governor who knows how to do it," said Craig, the Harford County executive. "By voting for David Craig in 2014, people will be voting for a pay raise for themselves."

The proposal — which comes two days after a Baltimore Sun Poll showed Craig languishing in the GOP primary race with single-digit support — calls for far steeper cuts than have been proposed even by General Assembly Republicans. Under Craig's plan, tax brackets would be lowered across the board to 4.25 percent as of 2016. In that first phase of a three-step plan, rates for top-tier incomes would be cut by more than 22 percent while middle-class taxpayers would see a decrease of about 11 percent.

According to the state comptroller's office, the plan's first phase would save $750 a year, or 0.8 percent of income, for a couple with two children and a taxable income of $100,000. The same size family with a $500,000 taxable income would save $5,300, or 1.1 percent, according to the estimate.

The plan was criticized as "reckless" and worse by Democratic candidates but won praise from Dee Hodges, president of the conservative Maryland Taxpayers Association, which helped Craig run the numbers.

"The states with low or no income taxes are the states people were fleeing to," she said.

Benjamin Orr, executive director of the Maryland Center on Economic Policy, said Maryland's income tax accounts for about half the revenue the state spends on schools, hospitals and other vital services. "Eliminating it would devastate the state's economy," he said.

Under Maryland's current tax rates, couples pay a basic rate of 4.75 percent on most of their income. Wealthier Marylanders pay a higher percentage on a sliding scale that tops out at 5.5 percent on income above $300,000.

Craig said he would couple his proposal with an increase in the personal exemption from $3,200 to $5,000. He said that would provide relief to middle-class residents that would help offset the fact that the greatest benefits under his plan would go to higher-income brackets.

The Craig campaign estimated the total savings to taxpayers from the rate cut alone at $600 million in the first year, with an average decrease of $353 for couples and $176 for individuals.

In the second phase, Craig said he would call for a further reduction to a maximum rate of 3 percent — with a bump in the exemption to $6,000.

Craig said a third phase in his plan, which would come sometime in what he hopes would be a second term, would eliminate the tax entirely. He said his proposal would not affect county piggyback income taxes, which the state would continue to collect.

According to Craig, elimination of the income tax would put Maryland in the company of nine states that have no income tax, including Texas, Florida and Tennessee.

The candidate left some wiggle room on the timing of the phase-out, saying he would monitor the effects of the tax and spending cuts on state revenue. But a spokesman said he hoped to go to the second phase by 2018.

Craig said he would direct his department secretaries to come up with 3 percent cuts in his first budget. Among the areas he said would be targeted is the Geographical Cost of Education Index, a formula that gives extra school aide to jurisdictions such as Baltimore City and Prince George's County that have high percentages of children from low-income households.

Craig said Baltimore and Prince George's could adjust to a reduced formula payment. "If they spend the money they have in a better way, it'll be better for them," he said.

A Baltimore Sun poll published Sunday showed Craig is the choice of just 7 percent of likely Republican primary voters despite seven months on the campaign trail. He lags behind the newest candidate in the race, former Ehrlich administration official Larry Hogan, who has 13 percent support. About two-thirds of GOP voters were undecided.

Other candidates in the June 24 Republican primary are Del. Ron. George of Anne Arundel County and Charles County business executive Charles Lollar, both of whom trail Craig.

Lollar is on record as supporting a phase-out of the state-income tax though he has not spelled out details of his plan. George said his plan calls for an immediate 10 percent cut, along with a cut in the corporate income tax. Hogan's campaign declined to comment.

Democratic candidates for governor showed no interest in Craig's plan. Attorney General Douglas F. Gansler said it would "result in numerous regressive taxes on middle class families." Del. Heather R. Mizeur of Montgomery County called it "reckless" and said it would "create a $2.5 billion hole in the budget."

The Craig campaign said the income tax plan has been in the works since November and was not a response to the poll. Craig said his campaign is actually going very well. He said many voters are telling him that they've been waiting to see who is getting into the race before making up their minds.

Shortly after Craig unveiled his plan, the House Republican caucus held a news conference of its own to promote what it called a "modest proposal" to cut the income tax by 10 percent over three years.

Del. Andrew A. Serafini, a Washington County Republican, said such a reduction would not require spending cuts to achieve Maryland's constitutional requirement of a balanced budget, arguing that lower tax rates would lead to economic activity that would generate more revenue.

Warren Deschenaux, the General Assembly's chief budget analyst, said the incomes tax brings the state about $8.5 billion in revenue a year, so a 10 percent cut would cost the state budget roughly $850 million a year.

Deschenaux said studies, including one from the nonpartisan Congressional Budget Office, have concluded that tax cuts tend to lead to declines in overall revenue. He said whatever stimulative effect that comes from leaving more money in taxpayers' pockets is offset by a decline in economic activity as a result of less government spending.

"Every responsible analyst of the question has determined that when you cut taxes massively, the economic effect does not offset the revenue loss on a dollar-for-dollar basis," he said.

If Craig were to be elected in heavily Democratic Maryland, it is unlikely that he would be able to persuade what would still be a heavily Democratic General Assembly to support him, said Todd Eberly, professor of political science at St. Mary's College.

"The Assembly's response would be no, we want to see an alternative way to raise this money," Eberly said.

michael.dresser@baltsun.com

Copyright © 2014, The Baltimore Sun
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