The Maryland income tax hikes passed last week that Gov. Martin O’Malley said will buttress the state’s education system will have a sharply negative impact on the state’s business climate, according to budget experts.
The budget passed by the General Assembly this week puts Maryland at a significant disadvantage in competing with Virginia and the District, said Christopher Summers, president of the Maryland Public Policy Institute.
For a family of four with a $250,000 annual income, Maryland residents would now pay $989 more in state income taxes, up from $16,786 under the current tax structure, according to an analysis by the nonpartisan Tax Foundation.
The $17,775 in state income taxes eclipses taxes in the District and far outpaces Virginia, where a similar family would pay $11,651 per year.
And four-person families earning more than $150,000 — the threshold when tax hikes take effect — would see their tax bills rise by $400 to $700.
“This tax increase is going to hurt jobs in the state. The evidence is irrefutable,” said Stephen Moore, senior economic writer for The Wall Street Journal.
An April jobs report released Friday showed Maryland lost more jobs than any state in the country, according to the U.S. Department of Labor. While the state’s unemployment rate is better than the national average, experts said the 6,000 jobs lost in April indicate a worrisome economic slowdown that could be accelerated by higher taxes.
“The O’Malley administration’s policy to tax their way out of the recession is an untenable plan,” said Summers.
O’Malley defended the budget shortly after its passage on Wednesday, and thanked the legislature for passing a compromise that included tax increases and budget cuts — something he said could not be accomplished in most states. The tax hikes would allow the state to avoid more than $500 million in contingency spending cuts, some of which would have come at the expense of the state’s school system.
But those tax hikes have hit nearly everyone in Maryland in some way over the last five years since lawmakers raised the state sales tax from 5 percent to 6 percent in 2007, according to Sen. James Brochin, D-Baltimore County.
Maryland spends more money per pupil than any state in the country, a sign of the state’s commitment to long-term economic growth, O’Malley said. A more educated generation will provide the state with higher paying jobs and income taxes that will fund the state going forward, he argued.
“There were a lot of unpopular votes cast in the course of these last six years, but they were the right votes to keep our state moving forward,” O’Malley said. “About 14 percent of us, because of the actions in this budget, will pay slightly more in taxable income.”
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