ANNAPOLIS — Maryland Gov. Larry Hogan can do more to address one of the state’s most vexing problems by reducing income taxes, according to one top Democratic official.
Senate President Thomas V. Mike Miller Jr. said Hogan’s second State of the State speech was “100 percent better than last year” but fell short of addressing issues such as education, transportation, the environment and reducing the state’s personal income tax rate.
“We also have an income tax problem here in the state of Maryland,” Miller said. “It’s not a pension issue or an earned income tax credit. It’s an income tax problem. We have one of the highest income taxes (in the country) and we need to create jobs, bring people here. We need to show them we can govern well without being the highest tax state in the union.”
“I’m not calling on the governor to do anything,” Miller said. “I’m a legislator. Our job is to make policy. We can put bills in, the governor can put bills in.”
Miller made his comment on the same day that the Senate Budget and Taxation Committee held a hearing on a bill that would phase in a 10 percent reduction of personal income tax rates which would also affect many small businesses. The bill is sponsored by Sen, Andrew A. Serafini, R-Washington County.
Senate Bill 124 would reduce state revenues by more than $151 million in the first year and nearly $800 million by the time it is fully phased-in in fiscal 2019.
“We can help the middle class, which is what Moody’s and Augustine has said is getting whacked the most,” Millers said, a reference to a report commissioned by the so-called Augustine Commission examining the state’s business and tax climate. “This would be the biggest help to the middle class. We get that plus we get all the small businesses.”
But the reduction comes with a cost. Serafini said some of that would be offset by an increase in economic activity related to increased consumer spending following the tax cuts. The balance would likely have to be offset by spending cuts — an option many progressive Democratic legislators oppose because of concerns that it will reduce spending on priorities such as education, health care and transportation.
“I wouldn’t propose it if I didn’t think it would generate economic activity,” Serafini said. “We may have to wiggle with the numbers some but I’m putting them out there to say ‘Let’s start the conversation.”
On Monday, Miller and House Speaker Michael E. Busch announced three bills they said were targeted to help the states “working middle class.” The package included one tax credit targeted to about 1,000 students who have high undergraduate student loan debt-to-earning ratios.
The package did not contain any discussion of a proposal to reduce income taxes despite the issue being identified in a report presented to the legislature-created Maryland Economic Development and Business Climate Commission, more commonly called the Augustine Commission.
That report identifies the state’s income tax — including the so-called piggyback income tax assessed by the state’s 24 jurisdictions — as a primary hurdle in making the state more economically competitive and business friendly.
“The personal income tax is the one thing that overrides Maryland is tax structure and that’s because we’ve given counties the ability to raise a piggyback tax,” Busch said.
Busch said that the add-on levy can push the combined state-local income tax rate to as much as 9 percent.
“The state income tax of 4.75 (percent) is very reasonable,” Busch said. “The fact of the matter is that counties have had the ability to raise the piggyback tax, and some have done it. If you’re living in Worcester County and your property tax is low and your piggyback tax is 1.25 (percent), you’re fine. If you live in Montgomery County, it’s 3.20, but you have some of the best schools in the country. You have some of the best facilities in Baltimore City in your hospitals in that area because you have the ability to pay for those things.”
The Moody’s Analytics report released in October found that Maryland’s base state rate is competitive among states considered to be its peer group. The additional county rates make those county piggyback rates nearly impossible to cut because jurisdictions count on the money — billions of dollars — to build their local budgets.
Reducing the state personal income tax rate was the last of more than a dozen recommendations made in a draft report by the Augustine Commission. The panel advised taking that step only once the state was on better fiscal footing or legislators could find a way to make the proposal revenue neutral.
Douglass Mayer, a spokesman for Hogan, has rejected the concept of revenue neutral tax cuts and said it’s merely increasing one tax to cut another.
“The governor has made it clear that he is in favor of any kind of a tax cut proposal the legislature or the presiding officers want to put forth including the initiatives and idea that are included in the Augustine Commission and we’re looking forward to seeing anything on that that is officially announced and seeing any of those bills that come to fruition, ” Mayer said.