Four Victories for Working Marylanders: The 2014 Legislative Session in Review

With the 2014 legislative session in the books, it is time to assess the General Assembly’s achievements as well as take stock of the work left undone. Today, we focus on several measures the legislature passed that will help move the needle toward broadly shared prosperity in Maryland.

1. Minimum wage increase. The General Assembly’s high-profile passage of legislation to raise the minimum wage in Maryland to $10.10 by 2018 will benefit nearly half a million workers and their families as well as boost the state’s economy (though compromises made by legislators will leave others behind). Maryland is now a leader in the nationwide effort to lift the stagnated earnings for workers, becoming the second state after Connecticut to raise the minimum wage to $10.10 per hour.

2. Expansion of tax credit for working Marylanders. Less noticed, but just as important, the expansion of Maryland’s Refundable Earned Income Tax Credit (EITC) to 28 percent of the federal credit from 25 percent will benefit over 422,000 Maryland households and lift many Marylanders out of poverty. The EITC enjoys bipartisan support because it encourages work, promotes personal responsibility, and helps struggling families get by. 

3. A budget that protects Maryland workers and businesses.  Lawmakers in Annapolis passed a $39 billion budget while minimizing deep or unnecessary cuts to important programs that benefit working Marylanders. The General Assembly began their work under the cloud of reduced revenue estimates that were cut even further in the middle of the session, so it is important to recognize their efforts to balance the budget while avoiding damage to important programs that benefit working families and businesses alike.

4. Stopping corporate tax giveaways. Success is not just about passing good legislation but also preventing harmful laws from enactment. This session, the General Assembly wisely blocked legislation that would cut taxes for large, multistate corporations (though they did pass a misguided tax cut for the top 3 percent of estates). And – though it came down to the wire – lawmakers did not allow themselves to be blackmailed into providing more film tax credits for out-of-state production companies.

The victories achieved during the 2014 legislative session will help improve the lives of Marylanders and strengthen the state economy. Of course, important work remains to foster broad prosperity in Maryland. Check back tomorrow for our discussion of the work that remains in the 2015 legislative session and beyond. 

Tax Day: What Do We Pay For, and Who Pays?

Tax Day is a good day to remind ourselves that taxes allow our state to make investments that benefit our economy and all Maryland’s residents, and that we must continue to work to make our tax code fairer.

What Do Our Taxes Pay For?

Taxes pay for important public services such as schools and health care that also help the state’s economy thrive. Residents and businesses alike depend on roads, bridges, and safe communities. Taxes make these investments possible.

Residents’ federal taxes mainly pay for national defense and major public programs such as Social Security, Medicare, Medicaid, and the Children’s Health Insurance Program. The largest items in the state budget include education, health care, transportation, and public safety.

Who Pays?

While the investments that taxes pay for play a large role in the lives of Maryland residents, the tax code itself plays an equally important role in determining who pays for these investments, and how much.

There are elements to the tax code that are beneficial for working Marylanders but others that favor the rich and well-connected. Like virtually every other state in the country, Maryland residents with moderate and low incomes pay a larger share of their incomes in taxes than do wealthy residents.

Source: Institute for Taxation and Economic Policy

Note: Data includes sources of family income for non-elderly taxpayers

In this regard, the tax code perpetuates and exacerbates inequality, which is particularly troubling as earnings for the wealthy in Maryland have increased while they have stagnated or declined for working Marylanders.

Unfortunately, the General Assembly has compounded this problem by raising the income exemption for the estate tax, allowing millionaires to withhold a higher level of income from estate tax filings. And although state lawmakers were unwilling to index the minimum wage to inflation during the 2014 legislative session, they passed legislation that has the withholding level for the millionaire estate tax eventually rise with inflation.

Thankfully, there are elements of the tax code in Maryland that benefit working families. Maryland has its own Earned Income Tax Credit (EITC) for people who work at low-wage jobs which complements the federal EITC and helps reduce inequality and lift residents out of poverty. This year, the General Assembly approved an expansion of the state EITC which will help the state’s workers keep even more of their money and further reduce poverty and inequality. This was an important victory for working Marylanders.

Maryland also employs a graduated rate income tax structure that rises with earnings, helping ensure that the wealthy pay their fair share. Maryland increased tax rates for high earners in 2012. Research shows that high-income residents do not leave a state in response to taxes (instead moving for family, job, and weather reasons. Indeed, Maryland remains the wealthiest state in terms of household income and the state with the most millionaires per capita.

Like the wealthy, large corporations operating in Maryland are not paying their fair share in taxes. Lawmakers failed to close a loophole that allows companies to avoid state taxes, and Maryland can do more to make sure its tax incentives are targeted toward moderate and low income residents that need them most.

As another Tax Day comes and goes, residents and lawmakers should be mindful that while taxes are necessary to pay for investments in Maryland’s residents and economy, there remains a need to improve the tax code so that it is fairer and promotes broad prosperity. 

Federal Earned Income Tax Credit Expansion Would Help Maryland’s Workers and Economy

Recent weeks have seen promising developments at the state and national level regarding the Earned Income Tax Credit (EITC), an important credit for low and moderate income working people. The EITC helps offset federal payroll and income taxes, reduces poverty and income inequality, strengthen work incentives, and gives a boost to Maryland’s economy.

At the federal level, President Obama’s Fiscal Year 2015 budget calls for the EITC to include more adults without children, who currently receive little or nothing from the EITC. Doing so would help 210,000 people in Maryland by substantially increasing their after-tax incomes and incentive to work. The President’s budget would also make workers between the ages of 21 and 25 eligible who currently are excluded. This is especially important for recent graduates with student debt and other young people who face multiple challenges when beginning their working careers, helping them gain a foothold in the economy.

Currently, a childless adult working full time at the minimum wage pays significant federal income and payroll taxes, but receives an EITC of less than $30. For families with children, by contrast, the EITC, when combined with the Child Tax Credit (CTC) is a powerful anti-poverty tool. Between 2010 and 2012,  the two credits lifted an average of 126,000 Marylanders--including 64,000 children—out  of poverty each year.

The President’s proposal will also significantly help low-income working families with children by making several temporary improvements to the EITC and CTC permanent. These improvements, first enacted in 2009 and slated to expire in 2017, have made more low-income working families eligible and boosted the credit for many others. Last year, 154,285 families in Maryland benefited from these improvements, and on average each year over 2009 to 2012, they lifted an another 14,200 Marylanders, including 8,400 children, out of poverty.

The EITC has a proven track record of boosting employment among parents. In addition, research has shown that the EITC also has important positive long-term impacts on children — helping them to do better in school and boosting college attendance rates. It would also give our economy a boost. Eligible workers will get to keep more of what they earn and, in turn, spend those dollars here in our state.

Congress should take the next step and approve the President’s proposal to improve these important tax credits to encourage work, reduce poverty, and invest in Maryland’s future.

Maryland is also one of 25 states to offer a supplemental Earned Income Tax Credit. Check back here for more on legislation in Annapolis to expand this important credit for working Marylanders.

House Hearing Today on Minimum Wage Bill that Will Benefit MD’s Workers and Economy

Later today, the House Economic Matters Committee will hold a hearing on legislation that would incrementally raise the minimum wage in Maryland to $10.10 per hour by 2016. The bill would also increase the tipped minimum wage from 50 percent to 70 percent of the full minimum wage. Doing so would provide an immediate benefit to hundreds of thousands of workers in Maryland and their families, as well as benefit Maryland’s economy overall.

As Maryland continues its slow recovery from the Great Recession, an increase in the minimum wage is needed to help workers’ earnings keep pace with a rising cost of living amid declining wages. This is particularly true for Maryland residents in the lowest 20 percent income bracket, where wages have declined by $1.24 per hour since 2009, according to a recent study by the Economic Policy Institute.

But the same study shows that raising the minimum wage would have a widely-shared, real impact on the earnings of Maryland workers. Because this legislation would raise the minimum wage incrementally over a three year period, these benefits would accrue progressively each year. In the first year of enactment, when the minimum wage in increased to $8.20, 257,000 workers would benefit either because their wage is directly increased or because employers are also likely to increase the wages of those making just above the minimum. In 2015, when the minimum increases to $9.15 per hour, 311,000 workers would benefit, while 455,000 workers would bring home higher paychecks when the minimum wage is increased to $10.10 per hour in 2016. In total, Maryland workers would receive $721 million in additional wages over the phase in period.

NUMBER OF MARYLAND WORKERS AFFECTED BY INCREASING THE MINIMUM WAGE TO $10.10 BY 2016

In thousands

Source: Economic Policy Institute

(Click to enlarge)

Further, the EPI study indicates that these benefits would go to a wide variety of working Marylanders. Far from the stereotype that most minimum wage workers are teenagers looking to make a little extra money, 86.7 percent of workers that would benefit from a minimum wage increase in Maryland are at least 20 years old, and 56 percent work full time. The average age of affected workers in Maryland is 33, while teenagers comprise only 13 percent of the workers who would see a raise. Nearly a quarter (23.2 percent) of Marylanders that earn the minimum wage are parents, and 58 percent are women. As a result of an increase in the state minimum wage, 210,000 children would benefit from at least one parent’s increased earnings.

While some might argue that increasing the minimum wage will lead to job losses as businesses cut back on employees and hours to make up for the need to pay workers more, evidence suggests that this is not the case.  Broad reviews of economic research on the relationship between the minimum wage and employment show that increasing the minimum wage either has no impact on employment, or a very small affect on employment that is eclipsed by the positive impact on workers and the economy that occurs when wages increase.

In this regard, increasing the minimum wage not only directly increases the earning of workers whose income is at or near the minimum wage, but will provide a needed boost to Maryland’s economy more broadly. Because low-wage workers are more likely to spend their increased earning on basic necessities, those who will benefit from an increase in the minimum wage are also likely to channel these benefits to the broader economy as well. This is supported by a recent study by the Federal Reserve Bank of Chicago, which shows that when the minimum wage is increased, households with at least one worker making the minimum wage increase their yearly spending.  This also means that these workers will spend their increased earnings locally. Increased wages would generate more than $456 million in new economic activity and would create or support 1,600 new jobs in Maryland as businesses expand to meet increased consumer demand, according to the Economic Policy Institute.

We have previously discussed how an increasing number of policy makers are joining the overwhelming sentiment among Maryland residents and the country as a whole that favors raising the minimum wage. State lawmakers should take advantage of the opportunity to increase the earning power of working Marylanders and benefit the state’s economy.