Opinion: Editorials

'Hidden' tax to hit Maryland, Virginia businesses extra-hard


You may have heard that the new Obama tax hikes will only affect earners making more than $400,000 per year. Think again. In fact, as the Wall Street Journal's editorial board pointed out last week, single taxpayers making as little as $250,000 per year and couples making as little as $300,000 will be hit hard thanks to two tax provisions that Obama insisted on reviving.

Although $250,000 may seem like a high income, it is not that outlandish in high-cost areas like the Washington region. In Montgomery County in Maryland, Loudoun and Fairfax counties in Virginia, and the District's Ward 3 (where the average income is over $250,000 per year), a $250,000 or $300,000 income is far from poverty, but also far from great wealth. Yet households making those amounts of money will now be squeezed harder as a spendthrift federal government tries to extract every penny it can.

Two tax provisions that died in 2010 have been revived as part of the "fiscal cliff" deal. The first is "personal exemption phaseout," under which high-income taxpayers lose the $3,800-per-family-member exemption. This provision will hit large families hardest.

The other provision is known as "Pease" -- named after a former Ohio Democratic congressman. It deprives high earners of up to 80 percent of many deductions they are currently allowed. This includes deductions for mortgages, charitable gifts and state and local taxes paid.

This could have a dramatic effect on blue-state taxpayers in places like Maryland and D.C., where both mortgages and state and local tax bills are enormous. Many Obama voters in those jurisdictions will experience sticker shock in April 2014 because the sky-high cost of housing and high state taxes have, until now, kept their federal tax bills relatively low.

Yes, this does mean state and local governments can no longer raise taxes with abandon, knowing that the largest contributors to their coffers will be shielded from the full effect by the federal deduction. But the biggest losers from the rate hikes and phaseouts will be small businesses operating in high-cost areas like the Washington region. Obama has just put another nail in the coffin of this area's mom-and-pop grocers, for example. With all of these changes, they will now pay substantially higher marginal tax rates than their big corporate competitors.

Just imagine -- all those liberals working so hard to keep Walmart out of D.C. probably helped re-elect the Walmart president.

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