As Maryland lawmakers weigh the first broad cut in income taxes in nearly two decades, they are headed for a fight over whether to grant a break to wealthier people.
A House of Delegates committee voted Friday to give $200 million in annual tax breaks to the state's working poor and to middle income earners, but rejected a proposal backed by the Senate that would reduce taxes for households that earn more than $150,000.
The action comes two days after a Senate committee turned the House's proposed cut for just the working poor into a much broader income tax break for all residents, a measure the full Senate had approved last month.
With just days until the General Assembly adjourns its annual 90-day session Monday, lawmakers will have to weigh competing tax cut plans that pit House Speaker Michael E. Busch's more liberal chamber against the more fiscally conservative chamber led by Senate President Thomas V. Mike Miller.
"The thing I'm most pleased with is that we're actually having an argument about which taxes to cut," Republican Gov. Larry Hogan said in an interview Friday. "I support all of them. I support Busch's tax cuts and Miller's tax cuts, and I hope they all get done."
Democratic members of the House say they're wary of reducing rates paid by people who earn more than $150,000 a year.
Under former Gov. Martin O'Malley, Maryland switched in 2008 from a flat income tax rate to a graduated system that levied higher taxes on the wealthy.
"If we're giving tax cuts, we should give it to people who actually need it, like the middle class," said Del. Eric Luedtke, a Montgomery County Democrat on the House Ways and Means Committee.
After the Senate's Budget and Taxation Committee dramatically revised the House version Wednesday, Sen. Richard S. Madaleno —the vice chairman — remarked that "the chasm grows wider and wider" between the Senate and House plans.
The last across-the-board cut to income taxes came in 1997, when then-Gov. Parris Glendening successfully pushed a 10 percent reduction. Later, when combined with a landmark program to increase funding for education, the tax cut was widely blamed for causing a financial shortfall.
Amid a recovering economy, Maryland now has a budget surplus, but lawmakers are taking a more cautious approach to lowering taxes.
The Senate version of the legislation cuts taxes by $40 million more than the House version. Backers say that amount would largely go to small businesses.
Senate Minority Whip Stephen S. Hershey, a Republican, said his chamber's proposal gave a break to higher-income earners because many small businesses file as individuals, not as corporations.
That means those businesses have a higher tax rate than corporations, which aren't subject to local income taxes that can add as much as 3.2 percent to a tax bill.
People who object to the Senate's version, Hershey said, "just look at those higher earners and say, 'those are rich people who just want to hoard their money.'
"We look at that tax bracket and see small businesses."
Hershey said that from his party's perspective, preserving an income tax cut for small businesses was such a high priority that it could derail passage of any tax cut if the House does not agree.
"We're going to try to change the conversation to make it about small businesses," he said.
Hogan has previously asked lawmakers to support the Senate's version of tax cuts, which would expand who qualifies for the Earned Income Tax Credit given to the poor, would grant a modest income tax break for couples who earn less than $150,000 and reduce rates further for those making more than that.
The House version gives the same breaks to the poor, but would leave income tax rates intact for joint filers earning more than $150,000. Under that plan, everyone would receive a rate reduction that amounts to up to $100 on the first $100,000 earned by single filers, or $150 on the first $150,000 earned by joint filers.
House Minority Leader Nic Kipke credited Hogan for making the debate possible.
"While the Senate and House are disagreeing on exactly how best to do it, it's refreshing to see that we are talking about tax cuts instead of tax hikes for a change," Kipke said. "My preference would be to see meaningful tax relief for all Marylanders and I hope that'll be the final result."
Del. Jay Walker, a Prince George's County Democrat, said that even though rates will not be reduced for higher income people under the House proposal, they'll still get a break on at least the first $100,000 of their income.
"All Marylanders will get some form of a tax break," he said.