The Senate Budget and Taxation Committee has passed another piece of legislation addressing the income tax revenue windfalls coming to the State and counties: Senate Bill 830, Income Tax – Standard Deduction – Inflation Adjustment, which indexes Maryland’s standard deductions to cost of living. The bill is anticipated to decrease county income tax revenues by $0.2 million in fiscal 2019, and by $10.4 million in fiscal 2023.
From the bill’s fiscal note:
The Consumer Price Index (CPI) is a measure of the average monthly change in the price for goods and services paid by consumers between any two time periods and is the most commonly utilized measure to calculate inflation and deflation. The federal Tax Cuts and Jobs Act altered the indexation of the federal cost-of-living adjustment by requiring the use of the chained CPI. This measure is similar to the CPI but is designed to better account for changes in spending patterns and grows more slowly than the traditional CPI.
Major components of the federal income tax are indexed for changes in inflation, including federal income tax rate brackets. … Although the State’s income tax brackets are not indexed for inflation, several components of Maryland’s income tax system are influenced by inflation, including the State pension exclusion, State earned income tax credit, and poverty level tax credit. Income tax brackets and other important components of the income tax, such as the personal exemption and standard deduction, are not adjusted for inflation.