Maryland’s Tax System Exacerbates Inequality, In-Depth National Study Finds
Lawmakers Can Improve Tax Code by Asking Wealthy to Pay Their Fair Share, and Expanding Working Family Tax Credits
Baltimore, Maryland – Maryland’s tax system is upside-down, with the wealthy paying a lesser share of their income to taxes that fund public investments than low- and middle-income families. That’s according to the latest edition of the Institute on Taxation and Economic Policy’s Who Pays?, the only distributional analysis of tax systems in all 50 states and the District of Columbia: https://itep.org/whopays/
This regressivity in Maryland’s tax code is largely driven by Maryland’s sales and property taxes, which are not adequately offset by an income tax structure that charges the same top rate to millionaires and billionaires as people earning $250,000 per year. There are also other tax breaks built into our tax system that benefit the wealthiest Marylanders and profitable corporations at the expense of everyone else. As a result, the wealthiest 1 percent of Marylanders – those earning more than $700,300 per year – pay a smaller share of their income in state and local taxes than anyone else. That also means low-to-moderate income taxpayers pay more (a higher percentage of taxes) on their incomes than the wealthy. “Regressivity” is a term that refers to this unfair taxation system in Maryland and elsewhere that benefits the wealthy and essentially penalizes those with lower incomes.
Lawmakers could help fix this imbalance by enacting the Fair Share Maryland plan, which would ask the wealthiest Marylanders to pay their fair share in taxes by adding new top income tax brackets, close corporate and other tax loopholes, and put more cash in working families’ pockets by significantly expanding the state Child Tax Credit. Both nonprofits, the CASH Campaign of Maryland and the Maryland Center on Economic Policy, will advocate for passage of the Fair Share Maryland plan (bill name pending) during the 2024 General Assembly in Annapolis.
“Maryland’s tax system may look better in comparison to many other states, but that doesn’t mean it is equitable or serving the needs of our state well,” said Benjamin Orr, President and CEO of the Maryland Center on Economic Policy. “We still have a tax system that favors the wealthy and powerful few over working families and profitable multinational corporations over our local businesses. As state policymakers face the threat of cutting programs and services without new revenue, it’s time to make our tax system more fair.”
“The increased revenue that will result from fixing Maryland’s tax system will then be available to better help the low-to-moderate income taxpayers CASH and others serve by adding more funds to Maryland’s Child Tax Credit,” said Robin McKinney, Co-Founder and CEO, CASH (Creating Assets, Savings and Hope) Campaign of Maryland. “The Child Tax Credit has been proven nationwide to lift eligible families and children out of poverty. Let’s make sure Maryland continues to help improve the lives of our children.”
The report’s key findings for Maryland include:
- Maryland is one of 42 states that tax the top 1 percent less than every other income group.
- The average effective state and local tax rate is 9.6 percent for the lowest-income 20 percent of individuals and families, 11.2 percent for the middle 20 percent, and 9 percent for the top 1 percent.
- 9 other states and the District of Columbia have more fair (less regressive) tax codes than Mayland
Nationally, tax systems in 44 states exacerbate inequality by making incomes more unequal after collecting state and local taxes, while systems in six states plus D.C. reduce inequality, the report finds. On average across the country, the lowest-income 20 percent of taxpayers face a state and local tax rate nearly 60 percent higher than the top 1 percent of households. The nationwide average effective state and local tax rate is 11.3 percent for the lowest-income 20 percent of individuals and families, 10.5 percent for the middle 20 percent, and 7.2 percent for the top 1 percent.
“When you ask people what they think a fair tax code looks like, almost nobody says we should have the richest pay the least. And yet when we look around the country, the vast majority of states have tax systems that do just that,” says Carl Davis, ITEP’s Research Director. “There’s an alarming gap here between what the public wants and what state lawmakers have delivered.”
Recent policy changes have exacerbated or lessened regressivity in state tax systems, depending on the choices made by lawmakers. Many of the states similar to Maryland that have tax codes that reduce inequality, or at least do less than average to widen inequality, have made strides toward more progressive tax policies in recent years. Massachusetts, Minnesota, New Jersey, New Mexico, New York, and the District of Columbia, for instance, have taken steps both to raise taxes on more affluent households and lower them for low- and moderate-income families.
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About the report:
Who Pays? is the only distributional analysis of tax systems in all 50 states and the District of Columbia. The comprehensive 7th edition of the report assesses the progressivity and regressivity of state tax systems by measuring effective state and local tax rates paid by all income groups. No two state tax systems are the same; this report provides detailed analyses of the features of every state tax code. It includes state-by-state profiles that provide baseline data to help lawmakers and the public understand how current tax policies affect taxpayers at all income levels. Over 99 percent of all state and local taxes, measured by their revenue contribution, are included in the analysis. https://itep.org/whopays/
About ITEP:
ITEP is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations on how to shape equitable and sustainable tax systems. ITEP’s expertise and data uniquely enhance federal, state, and local policy debates by revealing how taxes affect people at various levels of income and wealth, and people of different races and ethnicities.
About Maryland Center on Economic Policy:
The Maryland Center on Economic Policy advances innovative policy ideas to foster broad prosperity and help our state be the standard-bearer for responsible public policy. We engage in research, analysis, strategic communications, public education, and grassroots alliances promoting robust debate and greater public awareness of the policy choices Maryland residents face together. For more information, please visit mdeconomy.org
About the CASH (Creating Assets, Savings and Hope) Campaign of Maryland:
The nonprofit CASH Campaign of Maryland works with its partners across the state to promote programs, products, and policies that increase the financial security of low-to-moderate-income individuals and families across the state. Most services are available at no or low cost to participants including free tax preparation, financial education classes and financial coaching. For more information, contact Robin McKinney, Co-Founder & C.E.O., CASH Campaign of Maryland, 443-692-9422 or Robin@cashmd.org. www.cashmd.org, @CASHMD On Facebook & Instagram, too.
Media Contacts:
Kali Schumitz at MDCEP, kschumitz@mdeconomy.org
Jon Whiten at ITEP jon@itep.org
Gayle V. Economos of GVE Media/Public Relations, LLC for the CASH Campaign of Maryland, 443-253-8191 GrkAthena@aol.com
