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Give Maryland’s local governments more flexibility with income tax rates | COMMENTARY

A tree begins unfurling her blossoms in the shadow of Maryland State House in Annapolis on Tuesday, March 30, 2021. A plan to give local governments greater power to lower income tax rates for working families may also prove one of the more attractive outcomes of the General Assembly's 90-day session. (Karl Merton Ferron/Baltimore Sun Staff)
A tree begins unfurling her blossoms in the shadow of Maryland State House in Annapolis on Tuesday, March 30, 2021. A plan to give local governments greater power to lower income tax rates for working families may also prove one of the more attractive outcomes of the General Assembly's 90-day session. (Karl Merton Ferron/Baltimore Sun Staff) (Karl Merton Ferron)

Reducing the tax burden on people who can least afford to pay ought to be a guiding principle at every level of government, whether there’s been a pandemic-spawned economic downturn or not. For all the talk of simplified “flat” tax rates heard elsewhere, it has simply never made sense to expect someone making bare subsistence wages to turn over the same percentage of income in taxes as someone making many times that salary. Thankfully, that soon may change in Maryland’s local jurisdictions.

Under the Local Tax Relief for Working Families Act of 2021 (House Bill 319 and Senate Bill 133), Maryland subdivisions would be allowed to set rates on a bracket basis with higher rates for higher incomes and lower rates for lower incomes as they see fit. The goal here is to allow greater flexibility to permit targeted tax cuts. This is called setting a “progressive” tax rate, and Maryland’s state income tax system has long met that standard. But since 1999, when lawmakers set aside the “piggyback” tax system where local governments followed Maryland’s progressive tax tables, Baltimore City and the 23 counties have been required to set a flat income tax rate for all their filers.

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Here’s how the new legislation would be expected to work. County executives, commissioners or council members consider their local budgets, calculate how much they’ll need to raise from income taxes and then perhaps ask Maryland’s comptroller something like this: “Based on income projections for the coming year, could we slightly elevate the rates for some and lower the rates for others in a way that would be revenue neutral?” It doesn’t really change the overall tax parameters — local government could still charge no more than 3.2% — though it does raise the minimum standard from 1% to 2.25% to reflect the reality of the times (given that the subdivision charging the lowest rate now, Worcester County, charges exactly that). Presumably, it will cause counties to seek opportunities. Perhaps the tax could be lowered from 3.2% to 3% for married families earning less than $100,000 to offer just one possibility.

Admittedly, this can get a little complicated. In half the subdivisions including Baltimore City, and Baltimore and Howard counties, this seems like an absolute no-brainer, since they already charge the maximum. In essence, the only place they can go is down. Perhaps the wealthy will resent getting left behind if rates fall for only some local residents, but we doubt it. Other counties like Carroll (3.03%) and Harford (3.06%) are not yet at the ceiling, so in the process of providing tax relief for some, those subdivisions may end up charging a higher rate for higher-earners. That’s bound to be more controversial, but so what? Let those counties battle over matters of fairness. The state is merely providing them the authority to make such decisions.

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Some Republicans have complained during floor debates over this measure that relatively low-tax counties have little place to go with this except up. In Worcester, for example, the county can’t drop the tax rate for lower-income families because it’s already at the lowest possible tax rate. That’s true. But what it does is give Worcester a chance to rethink is its overall approach. What if it raised the tax rate for the truly affluent and then used the extra revenue to provide some other form of assistance to the working poor? Equity can still be achieved. It simply requires the political will to recognize that progressive income taxes are far more fair than other sources of government revenue including the property tax, which can penalize older people for simply staying in homes that rise in value.

This wasn’t supposed to be the year of tax cuts, but pandemic relief aid out of Washington and less-than-expected hits to tax revenue despite the COVID-19 pandemic have put local governments in an interesting position. They are not in the fiscal crisis that many (including us) had warned about one year ago. Making income taxes fairer seems like a worthy cause no matter the financial situation. We would urge Gov. Larry Hogan to sign this bill when it shows up on his desk after the General Assembly adjourns next Monday. After all, he’s long favored tax cuts, and this leaves local governments the choice whether to pursue them. The only cost to the state? Income tax calculations get a little bit more complicated for the comptroller. That’s a small price to pay for properly targeted tax relief.

The Baltimore Sun editorial board — made up of Opinion Editor Tricia Bishop, Deputy Editor Andrea K. McDaniels and writer Peter Jensen — offers opinions and analysis on news and issues relevant to readers. It is separate from the newsroom.

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