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Officials still struggling to see how federal tax cuts will affect Montgomery County

ROCKVILLE — When County finance officials arrived Monday to a pre-scheduled briefing with the Montgomery County Council on the effects the recently-passed federal tax cuts will have on the County, the analysis they provided to the Council was sobering: they don’t know what the effects will be. 

Monday’s briefing, which brought together legislative staff, finance officials and economists to meet with the County Council, came on the heels of the release of a report by the state comptroller on the Tax Cuts and Jobs Act passed in December. While the session was meant as a briefing to the Council on the potential impact of the tax cuts – which already have resulted in a $120 million budget shortfall for the current fiscal year – after less than three months under the overhauled tax code, it is still too early to tell what the effect will be on the County and state.

“Montgomery County, the State of Maryland and every other state and local jurisdiction in the country are looking for answers right now – we don’t have all the answers,” said Jacob Sesker, a senior legislative analyst with the County Council.

The reduction in the federal tax deduction for state and local tax was one of the tax bill’s more contentious provisions, as Democrats and some Republicans claimed the reduced deduction amounted to a punitive tax increase for states that went for Democrat Hillary Clinton in the 2016 election. However, the comptroller’s 60-day report found that the total effect is likely to be positive for most Maryland taxpayers. 

According to the report, 71 percent of Maryland taxpayers will see a reduction in their federal taxes with an average deduction of $1,741. While 554,000 families in Maryland will see their tax bills increase on account of the smaller deduction, 633,000 families will see a positive impact from the reduction in the state and local tax deduction.

“We have some work together with respect to the comptroller’s analysis, as you know his analysis was aggregated on the statewide level,” said Montgomery County Department of Finance Director Alex Espinosa. 

While the comptroller’s report appeared to have some favorable news for many Marylanders, Espinosa said his department will have to spend time looking at the report and determining the overall impact which could take up to two years.

While the comptroller’s office was able to quantify some effects of the Tax Cuts and Jobs Act, Sesker said the hurried pace with which Congress passed it in order to give President Trump a legislative victory in his first year in office meant it was rushed through without much transparency, which means that the total effect on the County is still unknown.

“At this point employers, governments and individuals and households are scrambling to figure out what this means for their own finances,” he said.

Despite the mystery surrounding the bill’s long-term effects, Montgomery County has already felt the impact of the massive overhaul of the federal tax code.

In November, County finance officials revealed that the County would face a $120 million budget shortfall for the fiscal year 2017 due to miscalculated projections of income tax revenue. County officials blamed the error on the County’s wealthiest taxpayers holding off on filing their taxes until after a Republican-controlled Congress sent a massive tax cut to the desk of a Republican president. The delays meant that tax revenues the County had anticipated for the current fiscal year never materialized, forcing the Council to hastily cut $53.3 million from the County’s operating budget.

Council President Hans Riemer (D-At-Large), said the Council will have to plan its budget for the next fiscal year despite not knowing the full impact the federal tax cuts will have on County finances.

“It’s possible that we may not yet know the full implications of the exiting law even in time for that [FY 2019 budget],” Riemer said.

@neal_earley

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