Options for Protecting Maryland’s Low- and Moderate-Income Families from Regressive Tax Increases
October 26, 2007
- Tax increases being considered to balance Maryland’s budget will have a disproportionate impact on low-income families.
- A typical low-income family in Maryland is likely to face a tax increase of a few hundred dollars — a significant amount for a family struggling to get by.
- To mitigate these tax increases, Maryland could do one or more of the following (with varying degrees of effectiveness):
- Increase and expand Maryland’s refundable Earned Income Credit.
- Create a new refundable sales tax credit.
- Increase and reform Maryland’s standard deduction; and/or
- Expand the property tax circuit breaker for homeowners and renters.
Maryland faces large budget deficits in the coming fiscal year and for the foreseeable future. Putting the state on secure fiscal footing will almost certainly require significant tax increases. Many of the tax increases currently under consideration would impose a disproportionate cost on Maryland’s low- and moderate-income families.
Maryland should seek to mitigate these tax increases on low- and moderate-income families for the following reasons:
- A broad package of tax increases is likely to cost the typical low-income family several hundred dollars per year. This represents a significant amount of money to a family struggling to make ends meet.
- Low- and moderate-income families in Maryland already face high state and local taxes — higher, relative to their income, than high-income Marylanders.
- Growing income inequality has left these families with a smaller share of the pie.
- These families have benefited far less than higher-income Marylanders from recent federal and state income taxes.
This paper describes four options for mitigating tax increases on-low families:
- Increase Maryland’s refundable Earned Income Credit from 20 percent to 25 of the federal credit and revoke the exclusion of workers without children living at home;
- Create a new refundable sales tax credit;
- Expand the property tax circuit breaker for homeowners and renters; and
- Increase and reform Maryland’s standard deduction.
Because these option are to varying degrees targeted on low- and moderate-income families — roughly the poorest 20 percent to 40 percent of the state’s population — they can provide significant assistance to each family at a reasonable fiscal cost.