Md. families would see ‘huge’ tax increase without deal

Congress and the White House need to come to an agreement before the end of the year or a number of tax breaks will end. (WTOP/Tiffanie Reynolds)

Colleen Kelleher,

WASHINGTON – Marylanders would be the nation’s hardest hit if Congress and the White House fail to come to an agreement on taxes to keep the nation from falling off the proverbial fiscal cliff.

“Maryland is really the No. 1 affected state in the nation when it comes to paying higher taxes if we go off the cliff,” says Scott Hodge, president of the Tax Foundation, a non-partisan tax research group that crunched the numbers.

Hodge says a family of four making the median income in Maryland would see a tax increase of $7,194.

“That’s the highest in the nation, in terms of raw dollars,” he says.

As a percentage of the median household’s income, Marylanders would pay 6.74 percent more in taxes from 2011 to 2013.

Only New Jersey would see a higher tax increase as a percentage of income: 6.82 percent. But, New Jersey families would pay less in actual tax dollars: $6,933.

Virginia families would see a tax hike of $4,451, and D.C. families an increase of $3,255, according to the Tax Foundation’s state-by-state analysis.

Factoring heavily in the calculations is the already-expired Alternative Minimum Tax. For the current tax year, Congress would need to retroactively patch that tax for rates not to revert to levels from 12 years ago.

Without a patch for the Alternative Minimum Tax, Hodge says a lot of Maryland residents “are due for a huge tax increase.”

“It’s possible that we slide off the cliff and go into January, and then Congress and the White House come up with a last-second deal, and thus save everybody from a full year of taxes.”

To reach its conclusions, the Tax Foundation used census and IRS data to estimate income and deductions for the median two-child family and then ran the numbers through its online calculator. It used last year’s data, because that was the last year there was an Alternative Minimum Tax patch. It assumed that Congress would not patch the Alternative Minimum Tax and that all tax cuts made during the Obama and Bush administrations would expire.

Not quickly resolving the tax issues, Hodge says, also poses problems for the Internal Revenue Service because the agency has to fix all of its forms and schedules before the tax season.

Not resolving the fiscal cliff issues threatens to “mess up the entire (tax) filing season.”

Hodge says bigger issue would be the nation’s credit rating and world standing.

“One of the things that worries me the most – and many economists – is the effect on the nation’s credit rating. We’ve already been downgraded once. I think there is a great concern if we go off the cliff, we will see another downgrade,” Hodge says.

A downgrade could put the U.S. in the same financial camp as Greece and Spain, he says.

Here’s how area households would be affected:

STATE Median Household Income for Four- Person Family (2011) Tax Increase 2011 to 2013 Tax Increase as % of Income
Maryland $106,707 $7,194 6.74%
Virginia $89,803 $4,451 4.96%
D.C. $76,230 $3,255 4.27%

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(Copyright 2012 by WTOP. All Rights Reserved.)

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