Preparing an Aggressive Agenda for Annapolis
Part 2: A Fair Tax Package
Part 2: A Fair Tax Package
I expect there will be a lot of talk in Annapolis of a revenue shortfall and why it is necessary to cut back expenditures. This will mean less money for our schools, roads and services. I believe there is revenue out there both to continue to provide services and also to provide needed tax relief to people in our community who are most in need. I will be introducing a series of bills that will raise revenue by closing corporate loopholes and getting money from those who can most afford to be taxed:
A. Closing the Carried Interest Loophole
This is something that both Hillary Clinton and Donald Trump agreed on – closing the carried interest loophole for private equity managers
Carried interest is a loophole in the tax code that allows the managers of hedge funds to pay a lower rate than most individuals.
A hedge fund manager usually takes 20 percent of all gains on the fund's investments. The tax code treats that income as a "long-term capital gain," which is taxed at a lower rate than ordinary income (currently maximums of 20 percent versus 39.6 percent).
It really should be taxed at the normal rate 39.6% because it is not a capital gain (selling stocks, etc. at a gain). Congress was supposed to fix this loophole but has not done so, and it is unclear whether they will plug the loophole. My bill (which is similar to other legislation introduced in New York, New Jersey, and Connecticut, and supported by the New York Times) would have these funds taxed at the normal rate 39.6% in Maryland until Congress moves ahead with plugging the loophole. It would raise close to $30 million in extra revenue in Maryland.
B. Closing the Nowhere Tax Loophole – The Throwback Rule
The ‘throwback’ rule is a form of corporate taxation that could generate much-needed revenue for Maryland. In short, it is a taxation measure that twenty -five states have already adopted to ensure that corporations pay state income taxes on 100% of their profits; we want Maryland to join those states.
The complicated details have to do with how taxes are paid by companies that do business in more than one state. A corporation that is based in Maryland but that also does business in at least one other state does not pay Maryland corporate income tax on 100% of its income. Instead, according to a complex formulation, it is liable for taxes based on the percentage of income earned within the state. The other states where the corporation does business are entitled to require the corporation to pay income tax in their states in proportion to the amount of business the corporation does there. However, many states do not collect such taxes; the result is that large corporations in Maryland have “nowhere income” – income on which they do not pay tax in Maryland or in any other state.
The throwback rule is meant to eliminate this tax loophole, by allowing the home state of the corporation to collect income tax on the portion of corporate income that is currently “nowhere income” – it is “thrown back” to Maryland.
It is estimated that there are over 200 MD corporations that have over $5 billion in ”nowhere income,” and closing this tax loophole would result in increased revenue of over $40 million for Maryland.
You can read more about the Throwback Rule by clicking: https://ilsr.org/rule/
C. Freezing the Estate Tax
Three years ago the legislature decided to increase the portion of an estate that is free of tax from $1 million to $5 million (the increase to take place over four years). My bill would freeze the untaxed level at $3 million – amounts over that level would be subject to the estate tax. By not allowing this amount to increase from $3 million to $5 million, we would save over $70 million over the next three years. If I was given an estate of over $3 million, I wouldn’t mind paying some taxes on it, would you?
D. Readjusting the Tax Brackets
My bill gives tax relief to those families with income under $50,000 and does not cost the state any money. It does that by raising the tax rates for those people who make over $2 million. It is time that the really wealthy pay a little more so we can provide some tax relief for those who are just getting by.
I am not sure whether any of my revenue bills will pass, but I do feel that when people say that we have to cut back needed money for schools, services and infrastructure, I can say that there is revenue out there. People just have to be willing to tax those corporations and super-wealthy people who have the ability to pay more.
E. Tax Relief: Improving the Rental Tax Credit Program
While there is not going to be a lot of money for improved tax credits this year, there is one minor tweak to the existing Rental Tax Credit program that would help some people who are currently ineligible for the tax. The Rental Tax Credit (which is for people over 60 or permanently disabled) excludes people who have more than $200,000 in retirement assets. This might sound reasonable, but it is actually a problem for the many people who do not have pensions but instead have their retirement savings in 401K and other retirement plans. While pensions aren’t calculated as retirement assets, 401Ks etc. are. My bill would get rid of the asset limit if the money is in a retirement plan.
