MARYLAND: A Pair of Progressive Possibilities

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Like their counterparts in most states, legislators in Maryland are expected to face some pretty rough sledding as they attempt to craft a balanced budget for the coming fiscal year.  As a result of the ongoing national recession, revenues have remained well below prior projections and the state now faces a budget shortfall of roughly $2 billion in FY 2011 alone.  Fortunately, as Neil Bergsman of the Maryland Budget and Tax Policy Institute pointed out this past week, legislators who recognize that revenue increases are an important part of a balanced approach to addressing budget deficits have multiple options available to them.  

Two of the most progressive of those options are the preservation of Maryland’s so-called “millionaires’ tax” and the implementation of combined reporting.  As ITEP explains in its latest report, to compensate for the loss of revenue arising from the repeal of a tax on computer services, Maryland enacted a temporary change in its income tax in 2008. That change, the so-called “millionaires’ tax,” created a new top income tax bracket with a rate of 6.25 percent applicable solely to taxable income over $1 million.  As ITEP observes, the change is slated to expire at the end of 2010, but preserving it would generate close to $100 million in annual revenue, while affecting fewer than 5,000 Marylanders each year.

Adopting combined reporting – as Texas, West Virginia, New York, Michigan, Massachusetts, and Wisconsin have all done within the last five years – would have a similarly salutary effect on Maryland’s long-term fiscal outlook. 

As this issue brief from ITEP argues, combined reporting represents the most comprehensive option available to states seeking to halt the erosion of their corporate tax bases and to curtail corporate tax avoidance. 

Indeed, a 2009 study by Maryland’s Office of the Comptroller suggested that the implementation of combined reporting in Maryland could yield as much as $100 million per year in additional revenue, simply by preventing large corporations from using legal and accounting maneuvers to shift income out of state.

Of note, according to the Maryland Gazette, Delegate Roger Manno has already introduced legislation that pairs these two options to help improve pension funding in the state.

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