Gov. Larry Hogan said Wednesday that he will seek to protect Maryland taxpayers from higher state tax bills caused by the federal tax overhaul President Donald J. Trump is expected to sign soon.
The Republican governor said he will submit legislation to the General Assembly next month to do that and called for unanimous legislative support of his proposals.
“Our goal will be to leave that money in the pockets of hard-working Marylanders,” Hogan said in an opening statement at a Board of Public Works meeting. “I am confident that our partners in the General Assembly who have expressed concern over the impact of this tax reform bill will support us unanimously in protecting Marylanders who could be negatively affected. Protecting taxpayers should be a bipartisan issue.”
Administration officials said that because so many Maryland tax rules are tied to the federal system, the federal tax overhaul could increase Maryland’s tax revenues by hundreds of millions of dollars a year. Hogan wants to make sure people’s state tax bills don’t go up because of the federal changes, aides said.
The governor called his idea “my holiday gift to the people of Maryland.”
Hogan did not offer details Wednesday but said his understanding is that the $1.5 trillion tax bill, which passed the Republican-dominated Congress just hours after the governor spoke, would yield significant extra revenue for the state. He promised that his legislation would return to taxpayers any additional state revenue received as a result of the loss of federal deductions and exemptions.
The governor, who has been under pressure from Democrats to oppose the Trump-backed legislation, did not offer an opinion on its merits Wednesday. He said the impact of the tax changes on Maryland has yet to be determined.
“It’s clear that some people’s taxes will go down, and some will go up,” he said.
Comptroller Peter Franchot, who also sits on the public works board, said his office is conducting an analysis of the federal tax bill and would report its findings to the governor, the legislature and the public. He said he does not plan to make his own policy recommendations and would leave those to Hogan and legislative leaders.
Franchot, a Democrat, said the analysis would be completed by the third week of January.
The comptroller welcomed the governor’s decision to take action.
“Anything the legislature and the governor can do to prevent damage to the taxpayers in our state is much appreciated,” he said.
While the notion of protecting Marylanders from unintended tax increases appears broadly popular, the legislature’s majority Democrats say they want to see the details and be assured the unanticipated revenues will materialize.
“We don’t know if it’s a one-time windfall or any windfall at all,” said House Speaker Michael E. Busch.
Busch said it appears Maryland will be one of the states most adversely affected by the federal changes.
“I wish the governor had stepped up and and spoken up about the tax bill earlier on,” the Anne Arundel County Democrat said.
Senate President Thomas V. Mike Miller could not be reached for comment, but Sen. Bill Ferguson, a Baltimore Democrat who sits on the powerful Budget & Taxation Committee, expressed wariness.
“The details will matter in whatever the governor plans to introduce,” he said. “It’s unclear to me how the governor’s proposal would not jeopardize the programs and services that all Maryland residents can access.”
If Maryland does receive a revenue windfall, Ferguson said, returning money to the state’s wealthiest taxpayers may not be the legislature’s top priority.
He said the state also needs to ensure affordable health care for its citizens and to find a way to fund the educational funding improvements expected to be recommended by a commission headed by former University System of Maryland Chancellor William E. Kirwan.
Hogan aides said one of the federal changes that could result in significantly higher tax bills is a $10,000 cap on the federal deduction for paying state and local income and property taxes.
Maryland, a high-income state that relies heavily on income taxes at both the state and county level, is among the states most heavily affected by the deduction cap. Maryland income taxes are not deductible at the state level, but property taxes are.
Richard Friedlander, tax partner at the accounting firm of Rosen, Sapperstein & Friedlander in Baltimore, said the taxpayers most affected by the state and local tax deduction cap are high-income residents of such places as Montgomery and Howard counties.
Some provisions of the federal tax bill could lead to state income tax increases for Marylanders who are far from wealthy.
Andrew M. Schaufele, director of the state’s Bureau of Revenue Estimates, said many middle- and lower-income tax bills will go up unless policymakers change state tax law.
Maryland’s tax code is built on the federal system, he said, so the restructuring of federal deductions and exemptions upends the way state tax bills are calculated, and the result would be hundreds of millions in additional taxes each year.
Schaufele’s office is still calculating the additional state and local tax bills Maryland residents would pay, but just one piece of the equation — the loss of state exemptions — already adds up to $750 million in extra state and local tax bills each year.
Here’s how that works: Taxpayers can only claim Maryland tax exemptions if they’ve first claimed the corresponding exemption at the federal level. Since the new tax code would eliminate many of those federal exemptions, there’s no way Maryland residents could claim the state version on their Maryland taxes unless state law changes. Without those state-level exemptions, Schaufele said, Maryland residents will pay $450 million more in state taxes and $300 million in local taxes each year.
“This really affects the middle class and below,” he said, because the state tax bills of the wealthy are not as impacted by these exemptions.
Likewise, the federal government’s doubling of the standard deduction could increase statewide tax revenues by hundreds of millions of dollars more, Schaufele said, as middle- and lower-income families choose not to itemize their federal taxes and therefore miss out on Maryland tax benefits tied to itemized federal returns.
Schaufele said middle- and lower-income people would be most affected by these shifts because wealthier taxpayers still would itemize their federal returns.
Todd Eberly, a political scientist at St.Mary’s College in Southern Maryland, said it’s still unclear what the overall impact of the federal tax overhaul will be. He said that without a specific plan, it’s premature for Hogan to talk about winning unanimous support.
“Politically, I understand what he’s doing, but he may be doing it sooner than he needed to or sooner than he should have,” Eberly said.
Bipartisanship on the core issue of taxes is unlikely in an election year, he added.
“We’re not going to see, ‘Oh, wow, now we’re going to have common ground and we’re going to protect Marylanders from the federal tax plan,’ ” Eberly said. “I expect acrimony.”