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Despite glitch, Congress poised to approve GOP tax plan

Lawmakers were expected to give final approval Wednesday to a sweeping overhaul of the nation’s tax laws despite deep opposition from Democrats and a last-minute hiccup that forced Republican supporters to delay their celebration.

The $1.5 trillion legislation, which would change the way millions of Marylanders file federal income taxes, would hand Donald J. Trump the first major legislative victory of his presidency while lowering taxes for millions of Americans.

But as Congress was scheduling final votes, state lawmakers in Maryland and elsewhere were beginning to scrutinize the potential impact on their own budgets. Maryland officials increasingly recognized that the federal legislation may have an enormous effect on state taxes, which could make it a central issue in next year’s General Assembly session.

“We’re going to analyze the whole thing, and if there are people that are negatively impacted by it we’re going to try to look at, are there things we can do at the state level to try to mitigate some of the problems it may have caused?” Republican Gov. Larry Hogan said Tuesday.

Underscoring the speed with which Republicans have moved the bill to meet the president’s Christmas deadline, GOP leaders abruptly announced they would have to push their schedule back one day after the Senate parliamentarian ruled that three provisions — all minor — violate the chamber's rules.

The decision will force a highly unusual second vote in the House, which had already approved the bill, 227-203.

The Senate was set to vote late Tuesday, setting up a final vote in the House on Wednesday. GOP leaders expected to deliver the bill to the president’s desk later in the day.

Republicans, who largely coalesced around the bill last week, were delighted that they were poised to approve the first major overhaul of the tax code since 1986. The rules glitch appeared unlikely to have any impact on vote totals.

“The vast majority of Marylanders will see a tax cut,” said Rep. Andy Harris, a Baltimore County Republican.

The measure would lower individual income tax rates for most filers and double the standard deduction — to $24,000 for a married couple. But it also would limit popular deductions such as those for mortgage interest and state and local taxes, a provision claimed by a higher share of Marylanders than by filers in any other state.

The bill would lower corporate rates from 35 percent to 21 percent and it would create a 20 percent deduction for so-called pass-through businesses in which an owner reports the business income on his or her personal return.

The left-leaning Institute on Taxation and Economic Policy has predicted that about 81 percent of Marylanders would receive a cut while about 12 percent would be hit with an increase — a share that has fallen in more recent iterations of the bill. The average tax cut would be $2,530, according to the analysis, while the average increase would be about $1,000.

The reverberations of the tax changes proposed in Washington were felt Tuesday in Annapolis, where lawmakers on the General Assembly’s Spending Affordability Committee met to set budget goals for next year.

The consensus was that the federal tax proposal would have a significant impact on Maryland and that adjustments to state tax law to respond to those changes likely would be needed when the legislature convenes in January.

David Juppe, senior operating budget manager at the Department of Legislative Services, said that his agency and the Bureau of Revenue Estimates are working on an assessment of the federal bill and hope to have a clearer picture of its effect next month.

Taking a conservative approach amid murky forecasts, the spending committee voted unanimously to set a goal of reducing the state’s $298 million projected revenue gap to zero in the budget that takes effect July 1. The committee, which usually wraps up its work in December, also voted to meet again in January to see whether it needs to alter its recommendations.

Sen. Roger Manno, who co-chairs the spending committee, said there are many concerns about what the federal government has done to Maryland.

“We’re in the crosshairs,” said the Montgomery County Democrat, who is running for a U.S. House seat in the state’s 6th Congressional District.

Republicans and Democrats alike have raised concerns about the $10,000 cap the legislation places on the state and local tax deduction. About 46 percent of Marylanders claim that deduction, according to Internal Revenue Service data — the highest share in the nation.

The average size of the deduction in Maryland is about $13,000.

Another potential issue: Maryland tax law allows filers to itemize deductions only if they have also done so on their federal forms. That means some filers who take advantage of the larger standard deduction on their federal form could wind up paying far more in state taxes, where the standard deduction is less.

Manno said one change that might require a response from Maryland is Congress’ move to raise the amount of an inheritance that can be shielded from the estate tax from $5.6 million to $11 million for individuals.

The senator noted that Maryland linked its estate tax exemption to the federal government’s in 2014. He said the Republican bill might force Maryland to decouple its tax from the limits in federal law to avoid a $1.1 billion revenue loss over 10 years.

“It would be absolutely devastating to the Maryland budget,” he said.

The legislation would repeal a provision in the Affordable Care Act that required everyone to have some form of insurance or face a tax penalty. While that provision has long been unpopular, Obamacare supporters and insurers have said it was intended to give healthy people an incentive to buy into insurance markets before they got sick.

Chet Burrell, president and CEO of CareFirst Blue Cross BlueShield, said that he is concerned the repeal of the so-called individual mandate would “further destabilize individual insurance markets and likely mean that individuals and families will face further escalating premiums.”

Democrats have panned the bill, noting that personal income tax cuts are temporary and pointing to non-partisan analyses that estimate it would add about $1 trillion to budget deficits. If those estimates are accurate it could set up a future debate about additional cuts to federal spending.

“The main problem is going to be, you have tremendous pressure on the federal budget that’s going to have repercussions” for state and local governments, said Sen. Ben Cardin, a Maryland Democrat who is a member of the Senate Finance Committee. “It’s going to have an impact.”

The Trump administration has rejected that characterization.

“The president has delivered on promise after promise, issue after issue, time after time,” White House press secretary Sarah Sanders said, “and we’re just getting started.”

john.fritze@baltsun.com

twitter.com/jfritze

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