General Assembly lawmakers on Thursday received a 41-page report from Comptroller Peter Franchot (D) detailing the ways the GOP-backed federal tax plan will affect state taxpayers.

Under current law, the same functions that will save Marylanders money on the federal level — an increased standard deduction, for example — will lead to less tax savings at the state level.

In response, Gov. Larry Hogan (R) announced that he would introduce the “Protecting Maryland Taxpayers Act of 2018” to offset the state-tax impact of the federal changes.

“Under our proposed legislation, Marylanders will not pay one cent more in state taxes as a result of the actions at the federal level,” Hogan said. “Our legislation ensures that this money will remain in the pockets of hard-working Maryland families and small business owners.”

Hogan also named a negotiations team to work on tax and health care issues. The members include Budget Secretary David Brinkley and Labor Secretary Kelly Schulz, two former legislators from Frederick County.

The negotiations team will seek to find a legislative solution before the General Assembly session ends on April 9.

Last week, Democratic leaders proposed a plan that would continue the state personal exemptions and create a state-run education fund that would allow Marylanders to claim donations as charitable expenses for tax purposes.

EXEMPTIONS

AND DEDUCTIONS

The new federal tax law zeroed out the standard personal exemption, which was most recently set at $4,050, until 2025 and reduced or eliminated many itemized deductions.

Under Maryland law, a tax filer’s ability to claim exemptions and deductions is tied to how they file their federal returns.

State law specifies that a state exemption of $3,200 may be claimed for each federal exemption. If the federal exemption is zero, however, it creates ambiguity over whether the state exemption can be claimed.

“Mathematically, you can deduct zero, but you haven’t really deducted anything,” said Andrew Schaufele, director of the Board of Revenue Estimates within the comptroller’s office. “It is the comptroller’s point of view, the office of the comptroller, that our exemptions remain intact, as is. We acknowledge that the statute is ambiguous and we would absolutely appreciate clarification” from lawmakers.

The federal exemption affected 90 percent of Marylanders, saving them about $490 million in state taxes and $310 million in local taxes, Schaufele said.

State taxpayers could also be hit by changes to federal tax deductions.

To offset the loss of federal personal exemptions, the federal tax plan increased the federal standard deduction, nearly doubling it to $18,000 for a single person and $24,000 for couples filing joint returns.

Many Marylanders would be better off to take the new federal standardized deduction, compared to their current federal tax filings, Schaufele said. But the benefit is lost at the state level, where the standard deduction is $2,000 for an individual and $4,000 for a couple and itemizing could lead to a greater tax benefit.

If everyone were to prioritize their federal tax filing, 700,000 Marylanders would shift into the state’s standard deduction as well. That would increase their state taxes by $300 million and local taxes by $183 million.

SALT DEDUCTION

The federal bill also eliminated or reduced many itemized deductions. A new $10,000 cap on the state and local tax (SALT) deduction is significant to many Marylanders. According to the comptroller’s analysis, more than half a million filers claimed the deduction in the 2014 tax year. The average SALT deduction was about $11,800 more than the new $10,000 cap, totaling about $6.5 billion.

For Maryland’s wealthiest filers, the SALT deduction cap will significantly increase their tax bills, Schaufele said.

CHARITABLE GIVING

Shifting away from itemized deductions could cause some Marylanders to reduce their charitable giving, Schaufele said.

While it’s nice to think that people will be altruistic and continue giving at the same level, “here will be impacts at the margins ... there will be an impact for charitable organizations,” he said.

CHILD TAX CREDIT

A “big winner” for the state of Maryland is the enhancement of the child tax credit, Schaufele said.

Under the federal tax plan, it has doubled to $2,000 per child.

Federal lawmakers also increased the income limit for families that qualify for the credit, up to $200,000 for an individual and $400,000 for a couple.

That’s significant in Maryland, he said.

“Maryland is a wealthy state. We have a higher cost of living. I would argue that our middle class, for a family of four, extends well into $150,00 or $175,000 if you live in the central Maryland or D.C. area,” Schaufele said. “This really extends the tax credit out to many middle-class families in Maryland.”

EDUCATION

SAVINGS PLANS

The federal bill expanded so-called 529 education savings accounts — which previously applied just to higher education — to apply to private K-12 schools.

Maryland allows a $5,000 annual income subtraction for the parents and grandparents of each child who has an account established in their name. Now that the accounts can be used for non-public K-12 schools that are attended by nearly 100,000 Maryland children, the state estimates a loss of $20 million in tax revenue.