Hogan to Submit Bill to Avoid State Tax Increases Caused by New Federal Tax Law

Gov. Larry Hogan

Gov. Larry Hogan, at a meeting of the Board of Public Works, Dec. 20, said he plans to introduce legislation to protect Maryland residents from higher state taxes expected to result from the federal tax overhaul passed by Congress.

According to a report in the Baltimore Sun, Hogan, a Republican, said he will submit legislation to the General Assembly next month to return to individual taxpayers any increase in state revenues resulting from the change in federal tax law.

“Our goal will be to leave that money in the pockets of hard-working Marylanders,” Hogan said. He called for unanimous legislative support of his proposals, which he called “my holiday gift to the people of Maryland.”

Hogan did not offer any details of the proposed legislation. But since many Maryland tax rules are tied directly to the federal system, the federal tax overhaul could add hundreds of millions of dollars a year to Maryland’s state tax revenues. The governor said he wants to make sure people’s state tax bills don’t increase because of the change in federal law.

Hogan did not express any opinion on the merits of the federal tax overhaul beyond, “It’s clear that some people’s taxes will go down and some will go up.”

Maryland Comptroller Peter Franchot, a Democrat, said his office will analyze the effect of the federal tax law on state revenues and report the findings to the governor, the General Assembly and the public by the middle of January. Franchot, who also sits on the Board of Public Works, said he would not make any policy recommendations. However, he said that anything the legislature and governor can do to protect Marylanders from higher taxes would be “much appreciated.”

Comptroller Peter Franchot

The state Bureau of Revenue Estimates said the loss of state exemptions could result in an increase of $750 million in state taxes for Marylanders. Since the Maryland income tax law is closely tied to the federal system, any change in federal exemptions and deductions has a direct impact on the tax burden for state residents.

Opponents of the federal tax overhaul contend that it will hit middle-class taxpayers hardest while benefiting the richest 1 percent. Among its provisions, it puts a $10,000 cap on the deduction of state and local income taxes, a deduction especially important to residents of states with high tax rates, such as Maryland, New Jersey, and California. It doubles the standard deduction, which is expected to reduce the number of taxpayers who itemize taxes. It also lowers the top individual tax rate from 39.6 percent to 37 percent, and increases the exemption for the individual alternative minimum tax and estate tax. And it cuts the federal corporate tax rate from 35 percent to 21 percent.

Democrats had urged the governor to come out against the federal tax bill. But Hogan took no stand until Wednesday, Dec 20, after the tax bill had already passed Congress, when he made this  proposal to mitigate the bill’s effects. Maryland House Speaker Michael E. Busch, a democrat,  said that Maryland will be one of the states worst affected by the federal changes.

“I wish the governor had stepped up and and spoken up about the tax bill earlier on,” Busch said.

It is not yet clear how the General Assembly, which has a strong majority of Democratic lawmakers, will respond to Hogan’s proposal. But with an important election on the horizon, the governor’s call for unanimous support may well be premature.

###