ANNAPOLIS — The Maryland Senate passed a $35.9 billion budget package Thursday that would increase income-tax rates on nearly all earners and impose a flat income tax on residents making more than $500,000 a year.
The spending plan would boost the state’s income-tax brackets by as much as 0.25 percentage point — a move expected to generate more than $500 million next fiscal year.
The budget bill passed after senators narrowly approved an amendment Wednesday night that would allow the state to tax “half-millionaires,” who make more than $500,000 annually, at the maximum 5.75 percent rate for every dollar they earn.
The “half-millionaire’s tax” — which would generate about $30 million on its own — was a major point of contention during Senate debate Thursday, with Republicans and some Democrats describing it as class warfare against the state’s wealthiest residents.
Under the proposal, a household that makes $501,000 a year — the minimum to quality for the flat tax — would pay over $2,500 more in taxes than a household that makes exactly $500,000.
Residents making less than $500,000 still would be taxed the traditional way, with gradually increasing rates applied to each chunk of income within a corresponding bracket.
Senate leaders said the change was needed to secure crucial votes from members of the Budget and Taxation Committee who had unsuccessfully pushed for a higher tax bracket on millionaires.
The last-minute amendment added to the across-the-board tax increase that the Senate approved in favor of a proposal by Gov. Martin O’Malley, a Democrat, to limit personal exemptions and itemized deductions on the top 20 percent of earners.
Mr. O’Malley’s plan would have garnered $182 million in income-tax increases, although it included other revenue-generating proposals that the Senate rejected.
The Senate narrowly approved the tax increase, which is detailed in one of four bills that compose the chamber’s budget package.
Critics argued the change will discourage many business owners who are being depended upon to drive job growth in the state.
“Karl Marx would be proud,” said Sen. David R. Brinkley, Frederick Republican. “This is as anti-entrepreneurial as you can get.”
House Democratic leaders expressed serious objections to the Senate-endorsed plan.
Majority Leader Kumar P. Barve, Montgomery Democrat, said the method of taxing half-millionaires could drive away the state’s highest earners.
Mr. Barve, who serves on the House Ways and Means Committee, which is expected to vet the proposal, said he will push to eliminate the flat tax on the rich.
“We know of no spot on Earth that does it like that. It’s not a good thing,” he said. “We would be the only ones and that’s not a way we want to distinguish ourselves.”
Senators passed the rest of the budget package largely along party lines but approved the tax increase by a narrow 26-20 vote, with eight of 35 Democrats voting against it.
Sen. Robert A. Zirkin argued that the flat tax on half-millionaires was a destructive, unnecessary addition to what was already a balanced-budget proposal.
“You raised their bracket but you also changed the rules of the game for them as well,” said Mr. Zirkin, Baltimore County Democrat. “I am ashamed of that amendment. … We’re better than that here in Annapolis.”
Senate President Thomas V. Mike Miller Jr. defended the amendment as necessary to the bill’s passage but acknowledged that the change could drive away some businesses.
Mr. Miller, Prince George’s Democrat, added that he thinks the increase will help the state in the long run by funding and preserving important public services.
“We have a responsibility to give back,” he said. “If you’ve made a success of your life, we have an obligation to do our part for everybody and I think that’s what this bill does.”
• David Hill can be reached at dhill@washingtontimes.com.
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