Reform panel wants well-off taxpayers to give more


Judy Swann makes about $30,000 a year working in th medical department at the Baltimore Gas and Electric Co. office downtown. Four floors above her, George V. McGowan earns more than $440,000 as chief executive officer of Maryland's largest utility.

A few blocks away, Connie Powell makes $18,730 a year as a computer operator for the State Highway Administration. At the top of the state's Department of Transportation, her new boss, O. James Lighthizer, makes more than five times that much.

While these taxpayers are separated by job titles and plenty of dollars, they have at least one thing in common: They pay the same Maryland income tax rate.

Currently, the combined 7.5 percent state and local income tax islevied on all income over $3,000 in Maryland, making it not only the second-highest effective tax rate in the country, behind New York, but also one of the least progressive. Proportionately, lower-income Marylanders pay a far bigger chunk of their earnings in taxes than those who are better off.

As a result, the Maryland Commission on State Taxes and Tax Structure has recommended that the current income tax rate TC and bracket schedule -- adopted more than two decades ago -- be revised to shift some of the tax burden upward.

"Those who have the ability to pay should pay," said R. Robert Linowes, a Montgomery County lawyer and head of the commission that has studied the state's tax system for almost three years.

The commission suggests raising the top state income tax rate from 5 percent to 6.25 percent. The local income tax rate, 2.5 percent for most jurisdictions, would remain the same.

Instead of the current flat rate, taxpayers would pay a graduated rate on taxable income up to $17,000 and then a flat 8.75 percent on income above that.

That change means about 1.4 million of the state's taxpayers would pay less state income tax and 741,000 would pay more, according to the Linowes commission.

The proposal would benefit Ms. Swann, an Aberdeen resident who moved home to live with her mother because she could no longer afford her house after her divorce. She could save about 9 percent on her state taxes.

"It just seems fairer not to tax people at the same rate when incomes are so drastically different," she said.

The proposed changes, however, would cost her friend, Jan Hammerbacher of Rosedale, a clerk in BG&E;'s cash management department. Based on a combined income of about $50,000, she and her husband, a warehouseman, would pay about 1 percent more in state income taxes.

The income tax changes are only part of a proposed overhaul of Maryland's tax structure that would also provide property tax relief for everyone, impose a new 2 percent tax on cars and boats, and increase sales taxes.

With all the changes, the commission figures an average family of four with two incomes would start paying more taxes if their income is over $50,000. Critics contend that the tax plan hurts middle-income and upper middle-income families far more than it does high wage earners.

But the 17-member Linowes commission says the plan would make Maryland's tax system fairer.

It would also yield some $800 million in new revenues in the first year alone that could help close the growing gap in education spending between rich and poor areas and tackle growing problems in health care, transportation and public safety.

For example, all the anticipated $100 million generated by the income tax changes would be earmarked for Baltimore and other poorer areas that currently get the least revenue from their local, or so-called "piggyback," income taxes.

Gov. William Donald Schaefer announced last week that he would ask the General Assembly to consider the entire tax restructuring plan this session.

Legislators, while unlikely to approve any new taxes this year, are expected to begin hearings and continue them through the summer.

Mr. Linowes, who has been lobbying business and civic leaders as well as politicians in Annapolis, insists that reform is overdue.

"There has been a hesitancy for dramatic change, and we believe it's time we issued the challenge," he said.

Overall, the state income tax -- the largest single source of revenue -- should be the most progressive, the commission says. Lawmakers could use it to offset the adverse impact other flat-rate taxes, such as sales and property taxes, have on lower-income people.

Maryland lawmakers have reduced the impact of the state's flat income tax at the lowest income levels by granting various tax breaks so that people making $5,000 to $10,000 pay an effective tax rate of 1.7 percent.

But, even when deductions and exemptions are figured in, those, like Connie Powell, with incomes ranging from $15,000 to $20,000 pay a rate that is almost identical to that of peo

ple making over $50,000.

"There are a lot of things that don't seem fair, and this is just one of them," said Ms. Powell.

Ms. Powell, who supports her disabled husband and two children, would see her tax bill drop about 19 percent under the Linowes proposal. Her boss, Mr. Lighthizer, would pay roughly 10 percent more.

"Those of us who make more should pay more," said Mr. Lighthizer, who earns $105,251 a year. "Better the burden fall on someone in my bracket than on some single parent making $18,000."

In the over-$200,000 category, where Mr. McGowan, the BG&E; chief executive, Mr. Linowes and some 21,000 other Marylanders hover, taxpayers could expect their income tax bills to rise by about 15 percent.

Still, other loopholes in state tax law -- including many closed by the federal government in 1986 -- give them a distinct edge. The commission has recommended that the General Assembly evaluate some of those special tax exemptions and deductions, including one for capital gains.

Overall, Mr. Linowes believes that he and many other Marylanders have a responsibility to pay more taxes.

"I would be paying my fair share, which I have failed to do," he said. "I'm not noble. I just think it's right and fair."

About this series

A gubernatorial task force headed by Montgomery lawyer R. Robert Linowes has recommended sweeping changes in the state's tax structure.

This is the fourth of several articles examining the Linowes commission's proposals.

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