As Republican delegates railed against a state income tax hike shortly before legislators approved it in mid-May, a lone freshman Democrat from one of the most liberal and affluent districts inside the Capitol Beltway got up to explain why she too could not vote for the taxes.
“I believe this discriminates against two-income families with children at home,” said Del. Ariana Kelly, a Bethesda mom with two young children at home.
The State and Local Revenue and Financing Act raises state income tax rates by 0.25 percentage points for single filers reporting more than $100,000 and joint filers reporting more than $150,000 taxable income. For people in the $300,000-$500,000 range, taxes go up 0.50 percentage pointst, an almost 10 percent increase.
The law also reduces personal exemptions for these couples, eliminating them entirely for couples with more than $200,000 in federal adjusted gross income. This raises both state taxes and the local piggyback income tax.
“We are not talking about people sitting on great piles of money,” Kelly said. “Kids are extremely expensive.”
Increasing Marriage Penalty
On her personal Web site, Kelly explained her opposition further.
“In current tax law, married Marylanders pay a higher tax rate than their single colleagues in the exact same jobs starting at a household income of $200,000. This is known as a ‘marriage penalty,'” Kelly said.
“By changing the tax brackets, this legislation expands the higher marriage penalty tax rates to affect couples earning $150,000 (for example, a husband and wife who each earn $75,000). This makes absolutely no sense to me, because when both parents are working, household expenses, including childcare, are higher, not lower.”
In addition, the highest marginal tax rate of 8.95 percent—including the county piggyback—will now be applied to married working parents who together earn more than $300,000, but not to a single person living on $250,000.
Exemptions Pile on Inequities
The change in the personal exemption had a similar impact, Kelly said.
For families with a combined income of more than $150,000, “this amounts to a flat fee per child between $53 and $107. A family of four with a combined income of $150,000 will pay $394 in new Maryland taxes due to this exemption phase-out. However, a single man making $150,000 will pay only $104. A single millionaire will pay only $53 extra. Even if that millionaire had a wife and two kids, they would pay only $212 in new taxes from this exemption phase out.”
“This part of the tax plan brings in $82 million, almost entirely from middle-class families with two working parents and dependent children,” Kelly said. Based on data from the comptroller’s office, she said, “I believe that 78% of the estimated 300,000 tax filers affected will have incomes under $250,000; 85% will have two working spouses and 70% will have dependents at home.”
Derided as ‘Not Progressive’
Along with Kelly, Del. Kirill Reznik, another Montgomery County lawmaker who describes himself as a progressive, joined four other Montgomery Democrats in voting against both the tax hikes and the budget act, which shifted teacher pension costs to the counties.
“I saw these bills as an unacceptable burden to our lower and middle class working families in Maryland,” Reznik wrote on his blog.
“As a vocal critic of the teacher pension cost shifts, I believe that this shift will force counties, particularly Montgomery County, to either increase property taxes, cut services to the community, or both. The pension shift, coupled with the tax increases passed, put too heavy a burden on middle class families, especially those with children. This was not a plan that increased taxes on the top 1%. Rather, over 40% of Montgomery County residents will see a tax increase of one form or another from this plan, and I refused to vote for a plan that was not progressive.”
The impact of the tax hikes was widely disputed. Another Montgomery County Democrat, House Majority Leader Kumar Barve, said the tax hikes amounted to $6.25 a week ($325 per year) for a married couple making $250,000, Barve said he and his wife would be paying an additional $4.88 per week and “I am willing to pay that price” to maintain state programs.
Citizens for Tax Justice approved the tax hike and said Maryland lawmakers were “bucking a national trend” of cutting taxes, particularly on the wealthy. “Only 11 percent of Maryland taxpayers would face an income tax increase in 2012 as a result of SB1302,” the group said, though legislators were quoting a figure of 14 percent.
The group said 54 percent of the new income tax revenue would come from the wealthiest 1 percent of state taxpayers, a group with an average income of nearly $1.6 million per year. Eighty-seven percent of the revenue would come from the top 5 percent of taxpayers, the group said.
Tax Foundation Disagrees
A report by Scott Drenkard of the Tax Foundation calculated a dual-earner, two-child family with $250,000 in federal adjusted income living in Maryland would pay $989 more in state income taxes this year, a total of $17,775, compared to $16,612 in the District of Columbia and $11,651 in Virginia.
Len Lazarick ([email protected]) is editor and publisher of MarylandReporter.com, where a version of this article first appeared. Used with permission.