Some Marylanders would see their state taxes go up while many others would see a decrease under tax legislation proposed by a state Senate committee.
By unanimous vote, the panel decided to scrap Gov. Larry Hogan’s approach to adjusting Maryland tax law in the wake of the federal tax changes approved by President Donald Trump and Congress.
Worried about the proposed cost of the governor’s bill, the Senate Budget & Taxation Committee approved a more modest bill Tuesday in which the state would keep at least $200 million annually out of the windfall expected for the Maryland treasury from the federal tax bill.
The additional revenue would help pay for an expected rise in the cost of K-12 education in Maryland in future years.
The key feature of the committee’s plan is to increase the standard deduction for the state income tax by $500 for individuals and $1,000 for married couples.
Sen. Edward J. Kasemeyer, the committee chairman, acknowledged that an undetermined number of individuals who face state tax increases as a result of the federal bill might not be made whole — the stated intent of Hogan’s bill. But he said many more Marylanders would benefit from raising the standard deduction.
“We think that approach is the best way of helping the most people,” the Howard County Democrat said.
A Hogan spokesman welcomed the committee action.
“What’s most important is that we are talking about tax decreases and not tax increases,” spokesman Doug Mayer said. “Protecting low and middle-income taxpayers was always the governor’s intention and what passed out of Budget and Tax today represents progress on that front.”
The legislation goes to the Senate floor, where its strong bipartisan support in committee virtually ensures passage. It would then go to the House, where lawmakers might have different ideas about tax relief.
The committee decided unanimously to approve a pair of tax relief bills — one introduced by a Republican and another by a Democrat — and set aside the governor’s legislation. Legislative analysts estimated that Hogan’s bill would have cost the state almost $900 million more in revenue over five years than the comptroller’s office estimated that the state would gain from the federal changes.
When he announced his legislation shortly after the Republican-dominated Congress approved the federal tax bill last year, Hogan announced he would introduce legislation to ensure no Marylanders paid more in state taxes as a result. But the Republican governor also signaled a willingness to work out a compromise with the Democratic leadership of the legislature.
The budget committee’s three Republicans joined the majority Democrats in supporting the bills. Senators said the decision was a result of bipartisan negotiations that included the governor’s office.
Sen. Andrew Serafini, who sponsored the standard deduction legislation, praised the committee’s approach.
“We put a lot of time in looking all the other alternatives,” the Western Maryland Republican said. “This is a middle-class tax fix.”
The Hogan bill relied heavily on preserving deductions and exemptions for state taxpayers that were eliminated under the federal bill. The governor’s approach would largely have benefited taxpayers who itemize their deductions. The committee did not take a formal vote on the governor’s bill, but Kasemeyer said it would not move forward.
Kasemeyer said about 55 percent of Maryland’s 2.8 million income taxpayers — most of them earning less than $100,000 — now take the state’s standard deduction. Another 700,000 are expected to do so next year because the federal changes significantly increase the value of the federal standard deduction.
For a married couple earning less than $100,000 that claims the standard deduction, the break would cut state and local income taxes by almost $80 if they live in Baltimore or one of Maryland’s counties with a high piggyback tax rate. The break would expire after three years unless lawmakers decided to extend it.
Lawmakers could not provide an estimate of how much other taxpayers might have to pay in extra taxes.
In addition to the measure raising the standard deduction, the committee also approved an extension of the Earned Income Tax Credit — a boost for low-income workers — to young adults without children. Maryland law now tracks federal law in excluding taxpayers under 25 who don’t have dependents. The committee-approved bill would allow taxpayers 18-25 who don’t have dependents to claim Maryland’s version of the credit.
Kasemeyer said the budget would include a stipulation that the estimated $200 million in revenue the state would gain under the committee’s bill would be held in reserve to help meet increases in K-12 education funding expected to be proposed by a commission headed by former University System of Maryland Chancellor William E. “Brit” Kirwan.
“They’re going to require a lot of money,” Kasemeyer said. “At least it’s a down payment on our getting there.”
Mayer said the administration will continue to work with our lawmakers to pass the other Hogan tax proposals, including breaks for retired military, correctional officers, first responders and small businesses.