Earlier this week, Maryland Governor Martin O'Malley released the broad details of a tax reform plan designed to close the state's $1.7 billion structural deficit. The plan would make the state's nearly-flat income tax more progressive, cutting income taxes for low- and middle-income families and creating two new upper-income tax brackets for those with taxable incomes over $150,000, and would reduce the rate of a statewide property tax. The net impact of the income tax hike (somewhere north of $150 million a year) would be dwarfed, however, by the impact of a regressive sales tax hike that would increase the rate and broaden the base ($730 million), a $1-a-pack cigarette tax hike, and the introduction of legalized gaming at Maryland racetracks ($500 million), each of which would arguably make the plan both less sustainable and less fair. The plan would also increase corporate income tax collections, although the way in which this would be done is not yet entirely clear.
So who will win and who will lose from the governor's plan? The governor himself is only conceding that "if you make more than $700,000 a year, you smoke, you go to the tanning salon every day, you have a gym membership, and you're a renter, you'll probably pay more." Of course, people earning a whole lot less than $700,000 are going to be picking up much more of the tab than O'Malley's description lets on. But that may be the unavoidable price of closing the state's yawning fiscal gap.