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O'Malley's plan would raise taxes for 35 percent of Howard taxpayers

Slightly more than one-third of Howard County residents would see an increase in their income tax contributions under Gov. Martin O'Malley's plan to cap deductions and phase out exemptions for high-income earners.

O'Malley's proposal would hit wealthy Howard harder than any other jurisdiction in the state, according to information provided by the governor's press office.

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In Howard County 35.4 percent of taxpayers would have to pay more in income tax if O'Malley's proposal is passed by the General Assembly, the highest proportion in the state.

Statewide, only 20.4 percent of taxpayers would be affected by the plan.

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Under O'Malley's fiscal year 2013 budget plan income tax deductions would be capped at 90 percent for people who earn more than $100,000 a year and at 80 percent for people who earn more than $200,000 a year.

Exemptions would be reduced from $2,400 per person to $1,200 per person for singles earning $100,000 to $125,000 a year and couples earning $150,000 to $175,000 a year. Exemptions would be completely eliminated for singles earning more than $125,000 and couples earning more than $175,000.

During a Jan. 18 budget presentation to reporters, the governor gave an example of what kind of impact the changes would have. A family earning $150,000, he said, would pay $191 more in taxes.

The plan, one of several initiatives aimed at closing the state's projected $1.1 billion deficit, is expected to provide an additional $182 million in revenue for the state.

But some state lawmakers don't think it's the best idea.

"It's just particularly bad timing given the state of the economy," said Del. Guy Guzzone, a Columbia Democrat who sits on the House Appropriations Committee, which is responsible for vetting O'Malley's budget plan before it goes to the House floor.

Guzzone said Howard County residents would be disproportionately affected by the deduction and exemption changes.

"For the most part, these are middle-income people," he said.

Del. Gail Bates, a West Friendship Republican who also sits on the Appropriations Committee, said the impact on Howard County "is huge."

She said the changes are effectively a tax increase, which is "unreasonable" given that O'Malley grew the budget by 1.9 percent from last year.

Bates, a tax accountant, said O'Malley's plan will impact small businesses that are formed as a Subchapter S corporation. Such businesses can pass their profits directly to their shareholders and avoid paying corporate taxes. Thus, the tax burden falls to the shareholders' personal income tax.

The deduction caps and exemption reductions are estimated to create $111 million in additional revenue for local governments through piggy-back income taxes, money O'Malley said could help lessen the burden of the $239 million in teacher retirement costs he is proposing to shift to the counties.

County Executive Ken Ulman, a staunch opponent of a teacher pension shift, said he hasn't looked at enough of the details on the proposed income tax changes to take a position, but he's not buying it as an argument for reducing the teacher pension burden.

"Essentially our citizens are being asked to pay more to cover that burden that's being transferred," he said.

This report has been updated to correct an erroneous figure for the proportion of county residents who would be affected by O'Malley's proposal.

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