MACo on Tax Reform: Won’t Oppose Broad-Based Tax Cuts

The MACo Legislative Committee formally adopted a statement this week to express its views on broad-based tax reform proposals pending before the General Assembly, designed to react (in various ways) to the recently enacted federal tax reforms. Absent state action, some Maryland taxpayers would see an increase in their state and county tax liability — the potential means to offset these changes sit before the legislature in multiple variations of changes to deductions, exemptions, rates, and brackets — each with distinct distributional effects.

Historically, MACo has opposed some substantial state tax changes, on the grounds that the spillover effects reduce county resources without county input. In the position statement, MACo urges the State to explore any potential means to create a “local option” means to effect targeted income tax relief at county discretion. Such a two-tier system works well with Maryland property tax policies, where many laws merely authorize, rather than compel, counties to grant a certain benefit.

MACo’s position, in total, follows:

    MACo Statement on 2018 Tax Relief Proposals
    Federal Tax Effects – County Collaboration

Maryland faces a spillover challenge from recent federal tax reforms, with multiple changes carrying over to affect Maryland taxpayers and revenues.
Counties will not oppose broad-based legislation designed to counteract or offset these external effects. Most notably, and already underway, the fast-tracked effort to clarify the continued effect of Maryland personal exemptions nominally carries a negative fiscal note, but represents a straightforward continuation of existing tax policies. MACo is not treating this bill as a change in tax policy, and is not raising objections to the arguable local revenue effects. Counties plan to respond similarly to added proposals to stem or counteract federal changes.

    Additional Pass-Through Changes – Counties Seek Local Determination

More broadly, however, there remain dozens of income tax proposals introduced this year by various sponsors. Each new or expanded subtraction modification essentially effects a statewide decision on each local jurisdiction, without any local determination of affordability.

Property taxes show the best collaborative way to enact targeted tax relief. The State and its local governments already work together here – where the State routinely grants a state-level tax credit, but then enables county governments to enact their own as a local option.

Given that this year’s federal action presents the State with a need to realign many income tax provisions, MACo believes the time is right to also explore a better means to effect state-based tax offsets. The General Assembly and Comptroller should use this opportunity to explore manageable ways to build a framework for income tax credits similar to that used for property tax credits. State legislation to grant a state-based credit and empower counties to follow suit could create the same collaborative approach on income tax issues that serves property taxpayers well.

At upcoming bill hearings, MACo expects to submit this general statement, as opposed to submitting bill-specific testimony on each broad-based tax reform proposal.

See previous Conduit Street coverage of tax reform effects in Maryland:

Income Tax Spillover Effect: Nearly $400 Million

Tax Reform In MD: DLS & Comptroller Weigh In

Michael Sanderson

Executive Director Maryland Association of Counties