O’Malley proposes tax hikes for 450,000 ‘high income’ households, doubling flush tax

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Gov. Martin O'Malley briefs reporters on his new budget with Lt. Gov. Anthony Brown, left, and Chief of Staff Matt Gallagher.

Gov. Martin O'Malley briefs reporters on his new budget with Lt. Gov. Anthony Brown, left, and Chief of Staff Matt Gallagher.

By Len Lazarick

About 450,000 Maryland households that earn more than $100,000 per year will see their state and local income taxes go up next year if the legislature approves Gov. Martin O’Malley’s budget proposal.

In order to balance an overall $35.8 billion state budget – a 3% increase over last year – O’Malley is asking to cap tax deductions and phase out exemptions for high earners.

O’Malley said the average family of four making $150,000 a year would pay $191 more in state and local income taxes. This would raise about $182 million for the state and $111 million in county piggy-back taxes, partly helping to offset a shift of the cost of teacher pensions to county governments.

These 450,000 households pay almost two-thirds of all state and local income taxes, according to reports from the comptroller’s office.

“I don’t like asking for this,” O’Malley said at a news briefing on the budget, which was web streamed online. “I don’t like doing this.”

“These are difficult things that we have to ask in difficult times,” O’Malley said.

In the governor’s plan, most households would also see a doubling of the flush tax to $60 a year to help pay for wastewater treatment upgrades, and cigar smokers could see the price of a single blunt go up by as much 75 cents. O’Malley also hopes to bring in more taxes from Internet sales from companies that have connections to Maryland.

Under O’Malley’s income tax proposal, personal exemptions would be reduced from $2,400 to $1,200 per person for singles making $100,000 to $125,000 and couples earning $150,000 to $175,000 a year. Itemized deductions from the federal tax form would be capped at 90% for taxpayers with gross incomes over $100,000 and at 80% for those with gross incomes over $200,000.

The political advantage of capping exemptions and deductions is that allows the state and county government to collect more revenues without actually raising tax rates.

Gas tax hike to come later   

O’Malley made no mention of a general sales tax increase he briefly floated last week. He said he would propose increases to gasoline and other transportation taxes and fees at a later date, along with announcing new highway and transit projects.

He did note that the 23.5 cents per gallon gas tax was last raised 20 years ago when the average price per gallon was only $1.08.

A coalition of 90 business organizations led by the Greater Baltimore Committee, the Greater Washington Board of Trade and the Maryland Chamber of Commerce are planning a rally in Annapolis Thursday to lobby for higher gas taxes.

But the Mid-Atlantic Petroleum Distributors’ Association released a poll conducted last week that showed Marylanders overwhelmingly oppose a 10-cent per gallon gas tax hike. The Gonzales Research poll found 76% oppose the increase, with 62% strongly opposed.

A majority of voters from all regions, all parties, both races and genders oppose the tax hike.

Republicans upset, liberal groups cheer

Republicans were predictably upset at O’Malley’s new budget proposal.

“This is an outrageous budget even by Annapolis standards,” said Senate Minority Leader E.J. Pipkin, Cecil County. “This governor has not seen a tax he does not like.”

In a statement, House Minority Leader Anthony O’Donnell said, “The governor’s budget redefines ‘wealth’ in this state and takes aim at the middle class.”

“Forget millionaires, this budget takes aim at thousandaires, phasing out income tax deductions such as mortgages and business expenses for those making even $100,000 per year!  The governor is balancing the budget on the backs of the middle class and small businesses at a time when we should be looking for ways to make them thrive.”

Sen. David Brinkley, R-Frederick, noted that the governor is even proposing to impose the 6% sales tax on purchases of gold coins and bullion, raising $3 million per year.

Liberal groups were much happier with the budget and tax plans. Neil Bergsman of the Maryland Budget and Tax Policy Institute, which backed a wide array of tax increases, said, “The new revenues added through reforms to the income, tobacco, and Internet sales taxes represent a balanced approach that will benefit Maryland more than the steady diet of cuts of past years.”

Vincent DeMarco of the Health Care for All Coalition praised the “life-saving” tax hikes on cigars and other tobacco products, making it comparable to Maryland’s $2 a pack cigarette tax. The governor estimates it will raise about $19 million, but DeMarco said his group thinks it will raise $30 million, while also cutting use of cigars by young people.