Donald Fry: Special session could produce uneven income tax increases

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By Donald C. Fry

When members of the General Assembly meet next week in special session, they will have a specific “To Do” list crafted by Governor Martin O’Malley, Senate President Mike Miller, and House Speaker Michael Busch for fixing the so-called “Doomsday” budget that was enacted by default last month.

In enacting a budget that will increase state spending by 2.6 percent in FY 2013, lawmakers apparently will be asked to pass legislation that could impose income tax increases of between 4.5 percent and 15 percent for Marylanders earning more than $100,000.

That’s the effect of the tax bill that had been crafted in conference committee when time ran out on the session’s last day, April 9. We’ll have to wait for Governor O’Malley to file the specific legislation on Tuesday, but if the income tax proposal includes the conference committee’s most recent proposed tax rates, it would impose substantial tax increases on major segments of the state’s taxpayers.

It would also create a tax structure with at least one curious inconsistency.

The governor and legislative leaders are absolutely correct in noting that the proposal under consideration will not increase income taxes for single taxpayers earning up to $100,000, nor will tax rates increase for joint taxpayers earning up to $150,000.

But, from there it takes taxpayers on a vacillating experience, a roller-coaster ride of percentage increases.

Single filers

For single filers, taxpayers making between $250,001 and $300,000 would experience the largest percentage tax increase of 15 percent.

Those earning between $150,001 and $250,000 – would have a 10 percent increase, yet those earning between $125,001 and $150,000 would endure a slightly higher 10.5 percent increase.

Taxpayers earning between $100,001 and $125,000 and those earning more than $500,000 would experience the smallest percentage increases of 5 percent and 4.5 percent respectively.

Joint filers

For joint filers, those making between $300,001 and $350,000 would experience a tax increase of 15 percent – the largest percentage increase.

Now for the curious inconsistency: Joint earners with incomes of between $150,001 and $300,000 get a wild ride. For example, joint earners of $175 thousand, $200 thousand, $225 thousand, and $300 thousand would experience income tax increases of 5.3 percent, 10.5 percent, 5 percent, and 10 percent respectively.

Taxpayers jointly earning between $350,001 and $500,000 would experience a 9.5 percent increase. Tax rates would increase 5.3 percent for joint earners of between $150,001 and $175,000 and 4.5 percent for joint earners of more than $500,000.

With one strange exception, the bell curve for tax increases for both single filers and joint filers peaks, for the most part, in middle brackets, imposing income tax increases of 10 percent or more on single filers earning between $125,000 and $300,000 and most joint filers earning between $175,000 and $350,000.

These days, people with these kinds of income levels aren’t poor, but they are far from wealthy. And many are small business owners and job generators.

The first question we have to ask is: in this economy does anybody deserve an income tax increase of 10 percent or more? A second pertinent question: is this kind of tax structure good for our business climate?

It would appear to violate a core pillar of a competitive state environment for economic growth and job creation: “A tax structure that is fair and competitive.”

This key tenet was among eight core pillars advanced by state economic development experts and business executives and compiled by the Greater Baltimore Committee in its report “Gaining a Competitive Edge.”

At least let’s hope somebody considers the impact on economic growth and job creation before enacting an uneven income tax structure.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Recent Center Maryland columns by Donald C. Fry:

Port illustrates value of transportation infrastructure

What did state lawmakers achieve before the meltdown?

An awkward sine die

Transportation: Lawmakers’ ready to adjourn leaving project priority lists unaddressed … again

Legislative impacts on Maryland’s business climate

Mayor’s summer jobs program is opportunity-driven

Facing the tide of opposition to transportation funding

Governing between fiscal extremes in Annapolis

Transportation legislation not the only issue on business radar in Annapolis

Protecting transportation fund: not a magic bullet, but still needed
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Donald C. Fry has been the president and CEO of the Greater Baltimore Committee (GBC), the central Maryland region's most prominent organization of business and civic leaders, since November 2002.

Under Don’s leadership, the GBC is recognized as a knowledgeable and highly credible business voice in the Baltimore region, Annapolis and Washington, D.C. on policy issues and competitive challenges facing Maryland. Its mission is to apply private-sector leadership to strengthening the business climate and quality of life in the region and state.

Fry served as GBC executive vice president from 1999 to 2002. From 1980 to 1999 Fry was engaged in a private law practice in Harford County. During this time he also served in the Maryland General Assembly. He is one of only a handful of legislators to have served on each of the major budget committees of the General Assembly.

Serving in the Senate of Maryland from 1997 to 1998, Fry was a member of the Budget and Taxation Committee. As a member of the House of Delegates from 1991 to 1997 Fry served on the Ways and Means Committee and on the Appropriations Committee.

Fry is a 1979 graduate of the University of Baltimore School of Law. He earned a B.S. in political science from Frostburg State College.