Local News
May 2, 2008
Lawmakers Chronicle Bill’s Journey
The ‘millionaire’s tax’ proved to be a difficult decision for lawmakers.
Barbara Pash
Associate Editor
As the hours of the 2008 General Assembly wound down, an intense drama played out behind closed doors. Legislators agreed they needed to repeal the computer services tax they passed in the fall special session.
But replace it with what? The solution that emerged was eventually, in part, the “millionaire’s tax,” a surcharge on earnings above $1 million.
“It could have been worse,” said Sen. Robert A. Zirkin (D-11th), a member of the Senate Budget and Taxation Committee that heard and approved Senate Bill 46, which repealed the computer tax and imposed the millionaire’s tax instead.
According to Mr. Zirkin, among the ideas being floated were increasing taxes on individual brackets more than $500,000 and/or $750,000 in addition to the $1 million tax. There was talk of making the tax increases permanent instead of “sunsetting,” or ending, after three years, as the millionaire’s tax does after 2010.
There was even talk of a tax on “snowbirds,” Marylanders who spend the winter in such sunnier states as Florida.
In the special session, Mr. Zirkin voted against the computer tax, a 6 percent tax on computer services expected to bring in $200 million annually. Mr. Zirkin also did not want to raise taxes, advocating for more budget cuts instead. But “once the computer tax got into the baseline budget, you had to replace that money. You can’t create a hole in the budget.”
It was a tough decision, and Mr. Zirkin received plenty of feedback from constituents who felt strongly about taxes and budget cuts, “alt-hough this particular provision,” he said of the millionaire’s tax, “was not their focus. They were more upset about the computer services tax, and some [constituents] weren’t even in that industry.”
In the end, Mr. Zirkin voted in committee for SB 46, only because an entire industry was at stake, he said.
“They can relocate. This would have shut [the industry] down” in Maryland, he said. What irks him most about the situation is that “some of the loudest voices to get rid of the computer tax were the loudest to vote for it in the special session,” he said.
Del. Jon S. Cardin (D-11th) is a member of the House of Delegates’ Ways and Means Committee, where SB 46 was heard on the House side. Like Mr. Zirkin, he voted for SB 46, and like Mr. Zirkin, it was a difficult decision.
SB 46 came to Mr. Cardin’s committee as a package of repeal, and there was plenty of opposition since many committee members represent Montgomery County, on which the tax falls most heavily. Even so, attempts in the House Committee to find alternatives to the millionaire’s tax failed.
Mr. Cardin sent out e-mails to constituents who might be impacted by the millionaire’s tax. “I wanted their reaction,” he said. And their responses? “Frustration,” he said. “The feeling that rich people are picking up the slack for everyone else. There’s a degree of acceptance of a progressive tax system, but how far can you push it?”
Mr. Cardin said the millionaire’s tax “impacts people I know and respect. They are very philanthropic. [Regardless of the amount involved] it matters philosophically. We want to welcome them into our community,” he said of the approximately 400 millionaires who reside in his district.
At the same time, Mr. Cardin said he had to weigh the impact on the approximately 1,000 to 1,200 11th District residents who work in the computer field. There was also the fate of the industry itself, which was “on the brink of leaving the state,” he said. “I had to make a careful, cautious decision how to handle this,” he said.
Sen. Jennie M. Forehand (D-17th), of Montgomery County, is a lead co-sponsor of SB 46. Ms. Forehand said she was “really angry” about the special session’s passage of the computer services tax.
“A lot of people in the legislature are not familiar with the [computer services] businesses we have in suburban areas, and a lot [of those businesses] are in my district,” she said. The computer tax “was going to fall heavily on small businesses, and we are trying to encourage that technology [in the state] and compete with North Carolina,” a hub of high-tech companies.
So Ms. Forehand introduced the bill to repeal the computer services tax, and somewhere along the way, she said, the amendment to replace the money partly with a millionaire’s tax was added.
“I voted to get rid of that amendment,” said Ms. Forehand. “I did everything I could not to have it happen. It’s grossly unfair.”
SB 46 passed both chambers, and the prediction that Maryland’s millionaires would leave the state because of it does not seem to have come true. “The people I know in this category have lived here their whole lives they’ve made their fortunes here,” said Ms. Forehand. “I haven’t had a backlash from constituents.”
Senate Bill 46’s “millionaire’s tax” applies to net taxable income as reported on federal tax returns, whatever the source of income (earnings, capital gains, trust funds).
The tax of 6.25 percent applies to earnings above $1 million; $500,000 to $1 million is taxed at 5.5 percent. The tax goes into effect 2008 and applies to tax years 2008, 2009 and 2010. The surcharge on every million after the first million would be $7,500 annually.
In the state, approximately 6,300 federal tax returns meet the criteria, filed by individuals, couples and business. Of individuals, the figure is said to be fewer than 5,000. Forty-one percent live in Montgomery County; 19 percent live in Baltimore County.
In the latter, the figure is said to be close to 1,000 millionaires, of whom an estimated 400 live in the 11th District. Baltimore County’s 5th District (in the North County) is also said to be heavily impacted.
The estimated $200 million that would have come from the computer services tax is being replaced by: $75 million from the millionaire’s tax; $50 million from the transportation trust fund; $25 million from the Chesapeake Bay trust fund; and $50 million from other, smaller budget cuts.
Sources: Senate Budget and Taxation Committee, Sen. Jennie M. Forehand and Del. Jon S. Cardin.