This week, a Montgomery County Council committee is beginning to review various tax proposals from the county executive and council members as they consider a framework to fund essential county services.
One proposal, from County Council President Natali Fani-González, would take vital help away from nearly 50,000 low- and middle-income families while handing a substantial tax cut to wealthy households. The council president has proposed eliminating the county’s Working Families Income Supplement, a local counterpart to the state and federal Earned Income Tax Credit, to fund other changes to the local income tax. Although the proposed tax rate changes may appear progressive on the surface, they would in fact cut taxes for households taking home as much as $1 million per year while doing little for those who truly need help.
The proposal would raise taxes or shrink refunds for about 49,000 low- and middle-income families on net, based on analysis by the Institute on Taxation and Economic Policy. These families would lose more from the elimination of the Working Families Income Supplement than they would gain from a lower tax rate.
- 36% of families with annual income under $41,000 would be worse off, with an average loss of $605 (about $50 per month).
- 10% of families with annual income between $41,000 and $85,000 would be worse off, with an average loss of $1,137.
- Despite a modest rate increase on the wealthiest residents – which, on its own, would be a positive step – working families bear at least 76% of the plan’s tax increases.
Like the state and federal Earned Income Tax Credits, the Working Families Income Supplement provides a modest but meaningful cash boost to workers and families. Crucially, the credit is refundable, meaning that it can ease affordability and offset sales and property taxes, even for families whose incomes are so low that they do not owe income taxes. Strong evidence links refundable tax credits like the Working Families Income Supplement to long-term health, education, and economic improvements.
Meanwhile, the plan’s tax rate changes are not nearly as positive as they may at first appear:
- At most 14% of the plan’s tax cuts to go families with annual income under $85,000, with an average savings of only $218 (about $18 per month).
- Many wealthy households gain more from the lower-bracket rate cuts than they pay due to the top-bracket rate increase (how marginal tax rates work).
- Essentially all households with annual income between $500,000 and $1 million receive a tax cut, averaging more than $500 (about $42 per month).
- At least 32% of the plan’s tax cuts go to households with annual income over $241,000. In other words, the wealthiest 20% of Montgomery County residents would get double the tax cuts going to the bottom 40%.
Council members should prioritize supporting the most vulnerable county residents by funding the Working Families Income Supplement as part of any revenue package in this year’s budget.