Maryland Senate approves sweeping income tax hikes

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Local,Maryland,Ben Giles

ANNAPOLIS - Maryland senators approved a budget plan Thursday with nearly half a billion dollars in income tax increases for almost all Marylanders, but with a more progressive twist than taxes proposed by Gov. Martin O'Malley, according to Democratic leaders.

Senators voted 26-20 to adopt the income tax plan, which raises rates starting with earners who have taxable income of $3,001. The tax rate would climb as high as 5.75 percent for residents earning more than $500,000. All 12 Republican senators voted against the bill, as well as eight Democrats who broke party ranks.

The tax plan was one of three budget-related bills that passed on the Senate floor. The Senate's budget proposal passed 37-9.

Proposed individual income tax rates
Taxable incomeCurrent tax rateProposed tax rate
$1-$1,0002.0%2.0%
$1,001-$2,0003.0%3.0%
$2,001-$3,0004.0%4.0%
$3,001-$25,0004.75%4.9%
$25,001-$75,000NA4.95%
$75,001-$150,000NA5.0%
$150,001-$300,0005.0%5.25%
$300,001-$500,0005.25%5.5%
$500,001-up5.5%5.75%

The $35.9 billion budget plan now goes to the House of Delegates, which also is looking at income tax increases, but not the sweeping hikes approved in the Senate.

While increases are probably necessary to balance the budget, those approved by the Senate are too broad for some lawmakers, according to Del. Jolene Ivey, D-Prince George's.

"It's just not possible," said Ivey, a member of the House committee responsible for taxation. "People can't withstand that kind of assault on their wallets."

Senators were unhappy with Gov. Martin O'Malley's proposal to cap some income tax deductions for residents earning more than $100,000 annually, and instead chose to pursue a plan that places the highest taxes on the richest Marylanders.

"Is it wrong to ask people who have more means to pay a greater percentage? Is it radical? Not at all," said Sen. Paul Pinsky, D-Prince George's. "It is reasonable, it is fair. This is a measured approach to balance the budget to provide those services to all Marylanders."

Had the budget plan not passed the Senate, contingency cuts of roughly $750 million would have kicked in with substantial cuts to education and Medicaid.

Senate Republican leaders said that while some of those cuts were unacceptable, lawmakers could have stomached others, rather than create what they called a half-millionaire's tax.

"It didn't have to be this way," said Sen. E.J. Pipkin, D-Eastern Shore. "We could've accomplished what we needed to accomplish with the budget through spending cuts, without shifting the pensions, without increasing taxes. And these taxes hurt the working families of Maryland."

Pipkin was particularly troubled by a measure that raises levies for residents make more than $500,000 to 5.75 percent, calling it a "jobs killer."

Rather than applying only to income above $500,000, the rate would apply to every dollar of taxable income, raising roughly $30 million more than the Senate's original proposal.

"Karl Marx would be proud" of the income taxes approved by the Senate, said Sen. David Brinkley, R-Frederick County. "This is as anti-entrepreneurial as you can get."

Senators also approved shifting half of teacher pension costs to local jurisdictions, but plan to phase in the shift over four years, rather than O'Malley's proposal to make the shift immediately.

Other taxes approved in the Senate budget include an online sales tax -- though not a digital download tax -- as well as higher taxes on some tobacco products and recordation taxes on indemnity mortgages expected to net roughly $40 million in new revenue.

bgiles@washingtonexaminer.com

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Ben Giles

Staff Writer - Crime Beat
The Washington Examiner