Ire over income tax plan to get louder Monday

A Maryland family making more than $175,000 will pay at least $254 more in income taxes this year under a revenue-raising plan the Maryland General Assembly is expected to take up when it convenes for special session on Monday.

The same family of joint tax filers with two children reporting more than $1.1 million in gross income would pay an extra $3,269 — a larger hit to the very rich.

The tax proposal would target the state's more affluent — pleasing liberals because it spares everyone in the lowest tax brackets and ensures that education and other programs won't be cut. Conservatives, however, warn it would turn away wealthy residents and hurt small businesses.

By many mathematical measures — dollar amounts, percentage increases and relative size — the $247 million tax plan agreed to by Gov. Martin O'Malley and top legislative leaders is relatively small. But politically, there is no such thing as a small tax increase.

About 16 percent of the state's earners would be affected.

"It might not seem like a lot," said Gene Curran, president of Victory Realty Group, a real estate investment firm in Baltimore, "but when you put together all of the fee increases there is a true impact." Curran didn't want to share his salary, but said his family of five would feel the pinch.

But Jack Kinstlinger, chairman emeritus of KCI Technologies in Sparks, said the extra $500 or so he'd pay in combined state and federal taxes is no big deal.

"Wealthy people can afford to pay a little more in taxes. We get so many tax breaks," he said. "The important thing is to have a healthy workforce, a well-educated workforce and a good transportation system."

Republicans complain that it's not just a matter of this tax increase but an accumulation of increases large and small since O'Malley was elected governor in 2006.

Change Maryland, a conservative group, estimates that the General Assembly has raised taxes or fees 20 times since 2007. Recent examples include an alcohol tax increase and higher toll fares.

"This is just one more piece of the puzzle, and they're running out of things to tax," said Larry Hogan, chairman of the advocacy group and a former aide to Republican Gov. Robert L. Ehrlich Jr.

It's a refrain that that will be trumpeted by the GOP in the House and Senate chambers and hollered by protesters from a red-brick plaza in Annapolis Monday. Already a mid-day news conference and an evening rally are scheduled to voice outrage at the tax package.

Business groups also point out that the increase affects companies organized under the tax-code as S corporations — typically small businesses. Revenue from these types of firms are taxed at personal income rates. Roughly 81,000 businesses filed S-corp tax returns in Maryland in 2010, according to data from the state comptroller's office.

"This is a tax is on the very part of our economy that we're hoping helps us grow our way out of the recession," said Kathleen Snyder, CEO of the Maryland Chamber of Commerce. "We are a small business state," Snyder said.

Snyder also said the increases reach too far into the middle class. The proposal would impact "a lot of young professionals that are married," she said. "You are hitting very middle class people. … We may be scaring some of them off."

If the tax package passes, Maryland would have one of the highest income tax rates in the country when you also take into account local "piggy back" income taxes, according to data compiled by the Federation of Tax Administrators. The state's highest rate would be 8.95 percent, so Maryland's wealthy would pay rates on par with Vermont (8.95 percent) New Jersey (8.97 percent) and Iowa (8.98 percent). Hawaii has the highest rate in the country, at 11 percent.

Warren Deschenaux, chief policy analyst for the Department of Legislative Services, acknowledged that the state ranks high in income tax rates, but said the emphasis on the income tax allows Maryland to have lower property taxes than other places. Maryland's total taxation ranks about 10th in the country per capita, Deschenaux said.

If O'Malley, a Democrat, and the legislature's Democratic leadership have their way, the special session will be a carefully choreographed affair with no surprises. Three bills will be introduced, and a series of hearings is already set for Monday.

After a chaotic ending to the legislature's regular session on April 9, when events spun out of control and a budget deal fell apart, the state was left with a so-called Doomsday budget that includes more than $500 million in spending cuts.

House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller, the normally sure-handed presiding officers, have worked since then to restore order and ensure that the special session goes smoothly.

They have a plan in hand and a timetable in mind for passing the income tax increases and other measures to avert the spending cuts. And they say they have the votes to pass the plan intact, without any changes that could bog lawmakers down in a new round of wrangling. They expect the session to end by Wednesday at the latest.

The tax proposal limits the increases to individuals making more than $100,000 after deductions and couples earning more than $150,000. Taxpayers who make more than those amounts would face both a rate increase and a phase-out of personal exemptions.

Analysts from the Department of Legislative Services, a nonpartisan agency that gives analysis and support to the General Assembly, provided estimates for how the plan would affect joint filers and families but not single filers.

Neil Bergsman, chairman of the Maryland Budget and Tax Policy Institute, said that the tax changes would be slight as a percentage of overall income. "I don't think that their life styles will be noticeably affected," he said.

For Hogan, who bills Change Maryland as a nonpartisan grass roots organization, that's not the point. He contends the increases are enough to cost the state jobs — in large part by pushing overtaxed Marylanders out of state.

"People are moving out of the state in droves and higher income earners in particular," he said. Hogan admitted it's difficult to quantify the number of people who move because of state taxation but insisted the anecdotal evidence is strong.

"I talk to people almost every day who are moving out of this state or talking about moving out of state," he said.

But resident Kinstlinger said he's seen no evidence that is happening. "I see a lot of wealthy people retiring to the Eastern Shore," he said.

For many taxpayers, the issue is nuanced.

Arlene Hale, owner of Hale Accounting Services in Montgomery Village, believes she and her clients already pay enough in taxes, and she's concerned that Hogan may be right about increases chasing high earners out of state.

Still, she doesn't think the tax increases would have much effect on her — unless lawmakers pile more hikes on top of it. And she doesn't share Republican lawmakers' enthusiasm for some of the Doomsday cuts as the better budgetary alternative.

"I'm all for avoiding cuts to education," she said. "It's not simple at all."



Tax changes

Additional income tax paid by joint filers with two children

Federal adjusted gross income of less than $150,000 — no change

Federal adjusted gross income of $175,000 — $254 more a year

Federal adjusted gross income of $180,000 — $325 more a year

Federal adjusted gross income of $205,000 — $464 more a year

Federal adjusted gross income of $255,000 — $444 more a year

Federal adjusted gross income of $525,000 — $1,823 more a year

Federal adjusted gross income of $1,100,000 — $3,269 more a year