A bill heralded by progressive lawmakers would allow Montgomery County and other jurisdictions in Maryland to raise income taxes on high-earning residents by a half-percentage point to provide tax relief for low- and moderate-income families.
The bill would increase the maximum allowable income tax rate from 3.2% to 3.7%.
“It’s simply unfair that the wealthy few have a smaller tax burden,” Del. Julie Palakovich Carr (D-Dist. 17) told members of the news media last week.
The bill is sponsored by Palakovich Carr in the House and Sen. Jim Rosapepe in the Senate. Montgomery County Councilmember Will Jawando (D-At-Large) has also been working closely with Palakovich Carr on the bill’s development.
Palakovich Carr and Jawando held a joint virtual news conference on Thursday afternoon to discuss the bill’s introduction. Its formal title is the More Local Tax Relief for Working Families Act of 2023.
Previously, Palakovich Carr and Rosapepe sponsored a similar piece of legislation, the Local Tax Relief for Working Families Act of 2021, that passed that year. This new bill would build on its foundation.
How it works
If passed, the bill would raise the cap on what county governments can tax residents in the highest income bracket. The statutory limit on income tax rates is currently 3.2% in Maryland, and half of all local counties are at the cap.
Two key provisions in the bill aim to provide safeguards to ensure low-income households would benefit from the policy in a tangible way.
First, the bill limits tax increases to the wealthiest taxpayers in the state—residents earning $500,000 a year individually or $600,000 with a spouse.
Second, according to the bill, the tax cap can be increased only if the county simultaneously and concurrently cuts taxes for the lowest-income tax bracket.
Palakovich Carr said passing this bill would help counties mirror the progressive tax model already in place at the state and federal levels. Both Maryland and the U.S. government use a bracketed income tax system that imposes lower rates on lower-income citizens and higher rates on higher income residents.
The 2021 tax relief bill sponsored by Palakovich Carr allowed counties to set up progressive tax brackets but was of little help to the 11 counties already sitting at the 3.2% cap—including Montgomery County, Palakovich Carr told Bethesda Beat in an email. She said this new legislation allows those 11 counties to adopt tax brackets without losing revenue.
What it would mean for Montgomery County
Because Montgomery County currently uses a flat tax rate of 3.2%, every working resident pays the same percentage of taxes on their income. The bill would allow the county to increase the rate for the highest earners and lower rates for people making less than $500,000 a year, according to Palakovich Carr.
The majority of county residents make less than $100,000 a year, Jawando said, meaning most residents would pay less in taxes if the bill passes. Multiple recent studies have shown that most Americans couldn’t find $500 in cash if they needed it in a pinch, Jawando said.
The bill could “make a real difference in the lives of our lower-income residents” and put hundreds of dollars in their pockets each year, he said, adding that it’s “also the fair and right thing to do.”
People in the top income bracket would get tax breaks on the first $500,000 of their annual income.
Raising the tax cap by 0.5% for the highest income bracket would earn the county over $70 million in revenue, according to 2020 tax numbers cited by Jawando. The extra funds would not only offset tax cuts but could help the county “make critical investments in schools, transportation, infrastructure” and other key areas, he said.
As the county continues to recover from the many impacts of the COVID-19 pandemic, Jawando said this bill would boost economic investment and growth.
Opposing perspective
Not everyone who knows the ins and outs of tax policy supports the bill.
Richard Gottfried is a part-time finance instructor at Montgomery College. A licensed C.P.A., he also owns a tax practice in Rockville and has run for Montgomery County Council and Rockville City Council, the latter several times. He told Bethesda Beat he believes this bill unfairly pits taxpayers against each other and fails to address larger issues with Maryland taxes.
Legislators in Annapolis should instead focus their efforts on decoupling the federal standard tax deduction from the Maryland standard deduction, he said. An act passed in 2018 prohibits Maryland taxpayers from opting for an itemized state deduction if they take the federal standard deduction—effectively raising taxes across the state, he said.
“The bill shouldn’t favor one group over another,” Gottfried said. “And if they’re going to push for more taxes, it should be fair to everybody and not just one group versus another.”
What’s next
Next, Palakovich Carr told Bethesda Beat the bill will go to the Ways and Means Committee in the House and the Budget & Taxation Committee in the Senate. Hearings have not yet been scheduled, she said.
If passed, the bill would take effect on June 1. Jawando said if it passes, he is “very interested” in using his authority as a council member to work with colleagues “immediately” on a county-level bill that would set up progressive tax brackets.
County Executive Marc Elrich told Bethesda Beat on Thursday that if the bill passes, he would support its implementation in Montgomery County.
“We don’t have a progressive tax system, and it’s a problem,” he said. “We’ll see what the fate of this bill is in Annapolis.”
Bethesda Beat reporter Ginny Bixby contributed to this story.
