Tax policy on the fly

From the Baltimore Sun

EDITORIALS

Tax policy on the fly

Our view: Bracket for top earners appears to be unique among the states and violates the principle that a dollar earned should not cost more than a dollar in taxes

Disinclined as we may be to pity the plight of those making more than $500,000 a year, the state Senate, in its attempt to raise more revenue from such top earners, has gone too far. The Senate has adopted a plan that appears to be unique among the 50 states and would violate a cardinal rule of income tax policy, which is that a dollar earned should not cost more than a dollar in taxes. When the House of Delegates takes up the budget, it will have some work to do to clean this mess up.  

Gov. Martin O’Malley proposed what remains the most sensible plan for raising new revenue through the income tax. Rather than changing the rates, his plan was to phase out some exemptions and deductions for the top 20 percent of Maryland earners. That had the benefit of being progressive (the amount it cost any family increased with their income) and of simultaneously providing new revenue for local governments as partial compensation for their adoption of some of the costs of teacher pensions.

But Maryland Realtors engaged in a highly effective public relations campaign designed to convince the public that Mr. O’Malley was seeking to eliminate the mortgage interest deduction. He was, of course, doing no such thing; his plan would have limited the total value of deductions high-income families could claim on their state income taxes to either 90 percent or 80 percent of their value on a federal tax return. Mortgage interest is, of course, only part of most tax filers’ deductions, and in any case, most of the value of those deductions is on the federal, not state, tax return. The Realtors’ contention that Mr. O’Malley’s proposal would make it harder to own a home in Maryland was a major exaggeration, but it succeeded in destroying any support for the plan in the legislature.

Read the full article from the Baltimore Sun.