Editor’s Note: The views expressed in MoCo Politics are the writer’s and do not reflect those of Bethesda Beat staff.
Democratic gubernatorial candidate Ben Jealous has said he would raise income taxes by 1 percent on the wealthiest 1 percent of Maryland taxpayers to pay for new spending. What would that mean for MoCo?
Jealous, who won the Democratic nomination as a progressive, favors at least four expensive new spending programs—free tuition for community colleges, more K-12 education funding under recommendations from the state’s Kirwan commission (including a 29 percent raise for teachers), universal pre-K education and single payer health care. Of these, only health care has a price tag; it was estimated at $24 billion by the General Assembly’s Department of Legislative Services. The other three items together could easily add billions more. Jealous needs revenue. And one of the places he is looking for that is the state’s top 1 percent of taxpayers.
The table below comes from the Comptroller’s Office and summarizes Maryland’s wealthiest 1 percent of taxpayers in tax year 2016. That year, the top 1 percent submitted 27,366 income tax returns accounting for $30.3 billion of net taxable income and $1.4 billion of Maryland tax after credits.
The first thing one notices is that Jealous’s plan to add 1 percent to these folks’ income tax rate would not raise a lot of money. The top income tax rate in Maryland is 5.75 percent, which takes effect in brackets over $250,000 for individuals and $300,000 for households. Apply a one-point increase to the $1.4 billion that the 1 percent are currently paying and the new revenue would total around $230 million. That’s peanuts compared to the state’s current $17.6 billion in general fund revenues and the billions more Jealous would like to spend. Jealous could DOUBLE income taxes on the top 1 percent and still be well short of the revenue he needs to keep his promises.
The second fact worth noting is Montgomery County’s share of the top 1 percent of state taxpayers. MoCo accounts for over 40 percent of the top 1 percent’s number of returns, federal adjusted gross income, net taxable income, gross state taxes and state taxes after credits. In contrast, the county has one-sixth of the state’s population. Jealous’s proposal would tax MoCo disproportionately to spend money in other jurisdictions. The state already disadvantages MoCo through its use of wealth formulas to disburse aid to counties; Jealous would amplify that policy.
Most Democrats (and many others) agree with the concept of progressive taxation. If you earn more, you should pay more. But as MoCo residents, we should consider this: Our county is heavily dependent on high earners for local revenue. Take away the county’s seven wealthiest zip codes and the rest of MoCo’s mean household income is about average for the D.C. region. Last year, when 50 of the county’s wealthiest taxpayers deferred capital gains income to take advantage of the federal tax cut, the county’s budget lost tens of millions of dollars. The county’s needs, especially in education and transportation, are gigantic and taxing the wealthy is one of its most important strategies for paying the bills.
So what happens if Jealous pushes through a big tax hike on top earners? Maryland and Virginia both have top income tax rates of 5.75 percent, but MoCo adds 3.2 percent to that. If this difference grows even more, that creates an incentive to relocate. MoCo already loses tens of millions of dollars a year in taxpayer flight to Virginia and even more to Florida, which has no income tax. And MoCo was targeted by another state income tax hike as recently as 2012, paying 41 percent of that increase.
We don’t intend to argue against all progressive taxation here. But the county’s revenue base is important to the operation of local government, which is currently strained by slow revenue growth and the need to compete with the rest of the region. When the state disproportionately targets MoCo for tax hikes that are distributed elsewhere, that’s cause for concern. We hope Ben Jealous will come to understand that if he becomes governor.
Adam Pagnucco is a writer, researcher and consultant who is a former chief of staff at the County Council. He has worked in the labor movement and has had clients in labor, business and politics.