Federal Law Gives Marylanders $2.8B Tax Cut: Comptroller

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Leslie A. Pappas

Changes to the federal tax code could yield a $2.8 billion net federal tax cut for Maryland taxpayers in 2018—while putting $28.7 million more in state coffers, state officials said Jan. 25.

The 60-Day Report, prepared by the Maryland Bureau of Revenue Estimates, laid out the new federal tax law’s potential impact on Maryland. The report is intended to help the governor and legislative leaders craft legislation in response to the 2017 federal tax act (Pub. L. No 115-97). Maryland Comptroller Peter Franchot and Bureau of Revenue Estimates Director Andrew Schaufele presented the report at a news conference Jan. 25.

“The bottom line is that the majority of Marylanders are going to benefit from this legislation, at least in the short term,” Franchot said during the news conference. “What remains to be seen is whether this plan provides long-term economic growth or if the predicted benefits are front-loaded and we’ll be left with a big bill to pay down the road.”

The report comes about a month after Maryland Gov. Larry Hogan (R) pledged to return any additional revenue the state receives under the new law to Maryland taxpayers, saying that “protecting taxpayers should be a bipartisan issue.” A Jan. 25 press release highlighted Hogan’s announcement of the Protecting Maryland Taxpayers Act of 2018, which would make “permanent a provision in Maryland law that prevents changes in the federal tax code from affecting Maryland state and local taxes.”

Impact on Taxpayers

During the news conference, Schaufele said that 71 percent of Marylanders will benefit from the new tax code, 13 percent will pay more than before, and 16 percent will be unaffected by the changes. The approximately 2 million taxpayers expected to benefit will see their federal taxes reduced by an average of $1,741 per taxpayer, he said.

However a “significant percentage” of Maryland taxpayers will see their state and local taxes increase if the state doesn’t change its laws in response to the federal tax law, Franchot said, adding that he hoped the report would “be a template for other states” as they grapple with the federal tax changes.

Schaufele said the report is preliminary and doesn’t reflect final estimates, and that the state expects to put out official estimates sometime in March.

Responding to Federal Law

Maryland is one of many states considering changes to state and local taxes to prevent taxpayers from paying more as a result of the new law. California, New Jersey, New York, Iowa, and Pennsylvania have all explored ways to bypass federal tax law changes that eliminate deductions and change various write-offs for businesses.

According to the press release, Hogan’s Protecting Maryland Taxpayers Act (PMTA) would “enable Marylanders who choose to take the standard tax deduction at the federal level to itemize deductions at the state level, whereas currently taxpayers opting to take the federal standard deduction also have to do so at the state level. This provision will make it possible for Marylanders to get ‘the best of both worlds’ by taking advantage of the higher federal standard deduction while still utilizing longstanding deductions at the state level.”

The PMTA further would address a potential $1.2 billion tax increase that Marylanders could face in FY 2019 due to changes impacting personal exemptions and ambiguity in state law.

“Let me be very clear—under our proposed legislation, Marylanders will not pay one cent more in state taxes as a result of the actions at the federal level. Our legislation ensures that this money will remain in the pockets of hardworking Maryland families and small business owners,” Hogan said.

Hogan acknowledged that several Maryland lawmakers have proposed measures to address the federal tax law, and called on the General Assembly to work with his administration on a collaborative solution before the FY 2019 budget is passed.

Request Daily Tax Report: State