Maryland's income tax hike on high earners will affect more residents in Montgomery County than elsewhere in the state, could inhibit its small business growth and would hinder employee recruitment at larger corporations, according to the state chamber of commerce.
Legislators passed a budget plan during May’s special session that includes a provision to raise the income tax rate for high-income Marylanders.
The lion’s share of the anticipated revenue from increasing the tax will come from Montgomery County, according to state data. Of the $154.7 million in expected additional annual revenue, $62.9 million or 40.7 percent will come from Montgomery County residents. However, only an additional $10.2 million in state income tax revenue will come back to the county, effectively as an offset to shifted state teacher pension costs, according to the county.
The tax increase would affect single Marylanders making an adjustable gross income of $100,000 or more and couples claiming more than $150,000. More than 93,500 annual returns filed from Montgomery County would fall under the increase.
Compared to the approximately 13.7 percent of Marylanders expected to pay more under the changed structure, in Montgomery County about 23.3 percent will pay more.
To the Maryland Chamber of Commerce, the increase is tantamount to a tax on small business, said Kathy Snyder, the organization's president and chief executive officer.
"Maryland is a small business state," she said.
While Montgomery County is home to a few Fortune 500 companies, it boasts a strong small-business community, Snyder said. Earnings of small businesses are often reflected on the personal income tax returns of owners.
"A lot of small business owners are going to be paying more in income taxes in a time when we are relying on these small businesses to come out of the recession," Snyder said.
Implications of the tax could reach beyond the county’s small businesses. For large corporations that employ workers at salaries in excess of $100,000, the tax could hinder recruitment, Snyder said.
Because the tax also applies to couples reporting more than $150,000 in adjusted gross income, its could potentially affect teachers, firefighters, attorneys and certified public accountants as well as younger workers who, together with their spouse, hold positions that could push them into a higher household income bracket, she said.
"You could have a lot of young professional couples who would easily hit that $150,000 level," she said of the county.
Statewide, the average increase per impacted taxpayer is would be $579, but for Montgomery, the increase per taxpayer would be $745.
The bill did not take into account the cost of living in Montgomery County, where $150,000 does not stretch as far as other places in Maryland, said Del. Ariana Kelly (D-Dist. 16) of Bethesda said. Kelly voted against the bill.
“A family of four living on $150,000 in Baltimore County simply has a much easier time paying the bills than a similar family living in Montgomery County,” she wrote. “Because of the personal exemption phase-out, the tax plan also puts the bulk of the new tax burden on two-income working families with young kids, who are likely also paying a significant portion of their income for day care and other child related expenses.”