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Want fairer taxes in Maryland? Allow progressive brackets at the local level | COMMENTARY

Members of the Maryland House of Representatives are seen socially distanced to prevent the spread of COVID-19 during the first day of the state's 2021 legislative session, Wednesday, Jan. 13, 2021, in Annapolis, Md. (AP Photo/Julio Cortez)
Members of the Maryland House of Representatives are seen socially distanced to prevent the spread of COVID-19 during the first day of the state's 2021 legislative session, Wednesday, Jan. 13, 2021, in Annapolis, Md. (AP Photo/Julio Cortez) (Julio Cortez/AP)

It is often said that Maryland is America in miniature. We have the full range of communities within our borders, from large cities to small towns to suburban counties to rural villages. All of our counties, regardless of size or wealth, provide critical basic services like building and maintaining our schools and infrastructure, paving our roads, and providing public safety, emergency services and a myriad of other public services for our residents. The challenge of how to pay for these services is a matter of constant discussion and consideration. As the former County Executive of Prince George’s County, I wrestled with this challenge for eight years leading the second largest jurisdiction in Maryland and wealthiest African American-majority county in the United States.

As daunting as it is — especially during a pandemic and a recession — to take a new approach that can deliver the services that our residents have come to expect, it can be done. And it can be done successfully with long-term impact. At both the federal and state levels, government services are partially funded by income taxes, and local government is no different. But that is where the similarities end, because while federal and state income taxes are assessed on a progressive basis, which applies a marginally higher rate as a filer’s income grows, the local income tax is set as a flat rate. This means that those low-wage and front-line workers hit hardest in the last year pay the same income tax rate as the highest earners in the state.

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It wasn’t always this way. Until 1999, the “piggyback tax” allowed counties to set their local income tax rates as a percentage of state income tax, which meant that the same brackets that applied at the state level applied at the local level. But after the General Assembly decoupled the local and state income taxes, counties were required to apply a flat rate across the board, capped at 3.2% of a filer’s income. The law has remained unchanged since 2001. A bill currently before the General Assembly would fix that.

The Local Tax Relief for Working Families Act of 2021, sponsored by Sen. Jim Rosapepe and Del. Julie Palakovich Carr, would allow counties to set their own local income tax rates on a progressive bracket basis. It would let county executives and county councils do for their residents what the federal and state governments already do — impose a lower tax rate on lower incomes and a higher rate on higher incomes, create the brackets for different levels of income, and give more people more money in their pockets without sacrificing revenue that pays for schools, roads and public safety.

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Another provision of the bill would permit counties to raise the marginal tax rate on individual and joint filers with incomes over $500,000 and $600,000 respectively, from 3.2% to 3.5%. This optional increase of up to three-tenths of a percentage point would apply only to that income above the $500,000 and $600,000 thresholds.

Half of Maryland jurisdictions, including many of the largest, such as Montgomery, Prince George’s, Baltimore, and Howard Counties, as well as Baltimore City, are already at the 3.2% cap. Without the option of raising the marginal rate on those highest income earners, reducing taxes for those who need it most would come at the cost of reduced revenue and cuts in services. By allowing counties the option of raising the top rate on their highest income filers, the General Assembly can give local leaders the ability to lower taxes for the vast majority of residents and maintain the same level of funding for education, infrastructure, and public health and safety that they do now — something that the state of Maryland already does.

Democrats of all stripes who governed through the fallout of the 2008 recession are understandably wary of any mention of taxes after witnessing the 2010 Tea Party backlash. But the economic fallout of the COVID-19 pandemic and its disproportionate impact on the lowest paid workers, as well as growing wealth disparity resulting from the 2017 Trump tax bill, should be a rallying cry for unifying around fairer income taxes.

Progressive marginal income taxes are a hallmark principle of tax fairness, which is why a Goucher Poll last year found that three out of four Marylanders support them. As Maryland digs out of the economic downturn caused by COVID-19 and grapples with growing inequality in the wealthiest state in the wealthiest country, giving local governments the option of reducing taxes for the hardest hit, lowest income workers is an important step and an opportunity for Maryland to lead.

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Rushern Baker III (info@bakerstrategygroup.com) is former Prince George’s County executive, and president and CEO of the Baker Strategy Group.

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