Senate Budget and Tax Committee Revenue Plan is Moderate and Progressive

The Senate Budget and Taxation Committee has wrapped up its work on the budget, and will recommend a balanced package of cuts and revenues to the full Senate.

Legislative staff is busy at work summarizing the committee recommendations. But we do have some key details of the revenue package.

The main revenue boost comes from adjustments to individual income tax rates. The tax rates on most income under $100,000 will increase by 0.15% to 0.20% (that is, 1/5 of 1% or less). Rates on taxable income over $100,000 will increase by 0.25% (1/4 of 1%). For single filers the full 0.25% increase starts at $75,000 of income.

The Institute on Taxation and Economic Policy estimates that taxpayers in the middle fifth of Marylanders (average income $55,000) will have a tax increase of $43 a year. Even for the top earners, the tax increases are 0.15% of income at most, after you figure in their federal deduction for state income taxes paid.

Revenue and Distributional Effects of Potential Rate/Bracket and EITC Changes

All Marylanders, 2012 income levels
(revised 3/14/12)*

2012 Income Group	Lowest 20%	Second 20%	Middle 20%	Fourth 20%	Next 15%	Next 4%	Top 1%
Income	Less Than	$24,000 –	$44,000 –	$69,000 –	$113,000 –	$222,000 –	$500,000 –
Range	$24,000	$44,000	$69,000	$113,000	$222,000	$500,000	Or More
Average Income in Group	$ 13,000	$ 33,000	$ 55,000	$ 89,000	$ 152,000	$ 319,000	$ 1,597,000
State tax impact of rate and tax credit changes (distributional figures do not include federal tax cuts from the deduction for state taxes paid)
Average Tax Change	–2	+13	+43	+77	+176	+492	+2,692
Combined state/federal impact (distributional figures include the impact of the federal deduction for state income tax paid)
Tax Change as % of Total Income	–0.01%	0.04%	0.07%	0.07%	0.09%	0.15%	0.13%
Average Tax Change	–2	+13	+39	+66	+138	+467	+2,006

Source: Institute for Taxation and Economic Policy

There were also some smaller tax increases: on cigars, on-line sales, and telecommunication companies, for example.

To offset the effect of tax increases and service cuts on working parents, the Committee recommended increasing the state’s refundable earned income tax credit.

These fair and modest increases allowed the Senate Budget and Taxation Committee to avoid catastrophic “Doomsday” cuts to local schools, college affordability, access to healthcare, local police, and more.

It also allows the state to moderate a shift of teacher retirement costs to local government budgets, and phase in the shift over four years, instead of imposing it all at once.

Now, it’s up to the full Senate to approve the plan. At the same time, the House of Delegates must devise its own budget and revenue package.

The Budget and Taxation Committee’s recommendations preserve funding that is important to Maryland’s families today and to our future prosperity. The full Senate should approve the plan, and the House should seek to make “fine tuning” improvements, not wholesale changes.

*Note: The chart was revised to reflect that the Senate committee plan calles for the 5 percent expansion of the refundable earned income tax credit to be phased in over five years. The chart now reflects the first 1 percent which would take effect for tax year 2012.