Fewer taxpayers would be affected by an income tax increase approved Monday under a House panel's plan then one approved by the state Senate last week.
The House plan also rejected the idea of applying the state's sales tax to online sales, which was supported by Gov. Martin O'Malley, a Democrat, and the Senate. House supporters of abandoning that tax cited legal and business implications from online sellers opposed to it.
The House Ways and Means Committee voted 14-6 to raise taxes on single filers who make more than $100,000 in federal adjusted gross income. Their rate would go from 4.75 percent to 5 percent. Joint filers would have to earn more than $150,000 for their rate to go up. Under a tax measure passed by the Senate, most taxpayers would have seen a .25 percent increase.
The House plan restores some of Gov. Martin O'Malley's initial proposal to reduce some income tax exemptions, which was rejected by the Senate.
The House plan also phases in a split of teacher pension costs with counties sooner -- in three years instead of four.
“Basically it's a combination of shifting more, and the Appropriations Committee is going to cut more spending than the Senate does,” said Delegate Kumar Barve, D-Montgomery.
While opponents of the teacher pension split argued it could hurt local government finances and bond ratings, advocates said the move is long overdue.
“It's an idea whose time has come,” said Delegate Melony Griffith, D-Prince George's. “It's a necessary activity that we have to undertake at this point.”
Under the House income tax plan, about 87 percent of Maryland residents would not see an income tax increase under the proposal, Barve said.
The state's income tax rate would rise from 5 percent to 5.25 percent for single filers with taxable income between $150,001 and $300,000. That rate increase would apply to joint filers with income between $200,001 to $350,000. The rate would rise from 5.25 percent to 5.5 percent for single taxpayers with taxable income between $300,001 and $500,000, compared to $350,000 and $500,000 for joint filers.
The top bracket would rise from 5.5 percent to 5.75 percent for people who make more than $500,000.
The House Ways and Means Committee also did away with a 5.75 percent “super bracket” for people who make more than $500,000. That would assess the top rate from the first dollar, instead of only on income above half a million dollars.
While Republicans on the panel voted against the measure, several said they believed it was a significant improvement on the Senate's bill.
Delegate Ron George, R-Anne Arundel, said increasing income taxes will still reduce discretionary spending that could help stimulate the economy.
“So I don't see it growing the economy,” George said. “I think it has a reverse effect and shrinks it.”
As for reducing tax exemptions, the House took more of a phased-in approach than the governor.
Under O'Malley's budget, exemptions would have been reduced from $2,400 to $1,200 for single filers who make between $100,000 and $125,000 and couples who make between $150,000 and $175,000. Exemptions would have been eliminated for singles who make more than $125,000 and couples with incomes above $175,000.
For single filers, the House plan would reduce the exemption from $2,400 to $1,600 for incomes between $100,001 and $125,000. Exemptions would fall from $1,800 to $800 for incomes between $125,001 and $150,000. Exemptions would be eliminated for single filers who make more than $150,001.
Joint filers with incomes between $150,001 and $175,000 would drop from $2,400 to $1,600 and from $1,800 to $800 for those earning between $175,001 and $200,000. Joint filers with incomes above $250,000 would not be eligible for exemptions.
The committee also modified tax increases on tobacco products other than cigarettes. For example, taxes on smokeless tobacco like snuff would rise from 15 percent 50 percent, significantly higher the Senate proposal to increase the tax to 20 percent. The House kept the current 15 percent of the wholesale price on premium cigars, instead of a Senate increase to 20 percent. Tax increases on “little cigars” are the same between the two chambers -- an increase to 70 percent.
The House panel also repealed a sales and use tax exemption for certain sales of direct mail advertising literature and mail order catalogues that are distributed outside the state.
The panel's vote kicked off what is expected to be a very long week of budget work by the House of Delegates. Any differences between the House and Senate will have to be worked out in a conference committee before the scheduled April adjournment of the General Assembly.