How will the federal Tax Cuts and Jobs Act affect the Maryland budget and county coffers? The Department of Legislative Services (DLS) opened the week with a prologue to the Comptroller’s analysis, planned for release on Thursday.
The Comptroller’s Office is hosting a briefing on its analysis of the impact of the federal legislation on Maryland revenues on Thursday, January 25, at 10:30 am in the Assembly Room of the Louis Goldstein Treasury Building, located at 80 Calvert Street in Annapolis. It will be streamed live on the Comptroller’s Facebook page.
At its Fiscal Briefing on Monday, DLS outlined four of the “dozens and dozens” of aspects which could potentially, significantly affect Maryland revenues:
Increased Federal Standard Deduction
Under State law, a taxpayer who claims the federal standard deduction is required to claim the standard deduction on their Maryland income tax return. With more taxpayers claiming the standard deduction at the federal level given its near doubling, less taxpayers will itemize in Maryland. This will lead to more taxpayers taking the state standard deduction of no more than $4,000. This leads to higher state and local income tax revenues, if nothing else changes.
State and Local Tax Deduction Limitation
Under the new federal tax law, a taxpayer’s federal itemized deduction for
State and local taxes may not exceed $10,000. Therefore, any additional property tax payments over that cap will be subject to state and local income taxes.
The State personal exemption amount that may be claimed ranges from $0 to $3,200, depending on the taxpayer’s federal adjusted gross income. Elimination of the federal exemptions could be interpreted by some to eliminate the state exemptions – which would result in hundreds of millions of additional state and local tax revenues. It is anticipated that legislation to address this will be considered this session as part of the leadership’s tax package.
A doubling of the federal estate tax exemption amount will lead to a reduction in State revenues from new estates – costing the state $40-65 million in tax revenues. Legislative leadership is also anticipated to address this issue through legislation.