Montgomery County Council advances amended progressive income tax, moves ITOC to $0 for FY27

The Montgomery County Council on May 8 moved forward with an amended progressive income tax proposal and voted to set the Income Tax Offset Credit (ITOC) to $0 for fiscal 2027, part of a larger effort to close a budget gap without adopting the County Executive’s flat 3.3% increase.

The council’s Government Operations and Fiscal Policy Committee had recommended replacing a flat 3.3% rate with a three‑bracket progressive structure effective Jan. 1, 2027. The committee’s recommended brackets were: 2.5% on the first $50,000 of taxable income; 2.8% on taxable income from $50,001 to $150,000; and 3.3% on income above $150,000. The committee also proposed using the ITOC—currently a property tax credit for eligible owner‑occupied households—as a one‑time offset to cushion the county’s revenue loss.

At the council meeting, Vice President Balcom offered an amendment that adjusted the lower brackets to 2.7% for $0–$50,000 and 3.0% for $50,001–$150,000 while keeping the top rate at 3.3%. "My amendment basically just changes the tax rates for 2 of the 3 categories," Balcom said when she introduced the motion. Finance staff presented estimates showing the Balcom amendment would lower the FY27 budget cost of the progressive structure by about $27 million compared with the GO Committee proposal and produce additional one‑time resources available for the Capital Improvements Program.

Supporters, including the chair of the GO Committee, framed the package as a compromise to protect lower‑income households while producing more revenue than the committee’s original bracket set. Chair Stewart said the committee rejected the executive’s flat increase and recommended the progressive approach because it reduces burdens on most residents while targeting higher earners. Mr. Smith, a county financial presenter, repeatedly emphasized that "moving to a progressive income tax actually means we have a loss of revenue," and that offsetting that loss is necessary to balance FY27.

Opponents cautioned that some households near the $150,000 threshold could see higher combined income plus property tax burdens once the ITOC is removed, and several council members said they remained unconvinced the package protects funding for Montgomery County Public Schools. Council Member Will Giordano said he could not support raising rates on households around $150,000. Council Member Kristin Mink said she would vote against the package as presented and asked that the council schedule more discussion.

On a straw‑vote for the amended GO Committee package (the Balcom amendment together with setting the ITOC to $0 for FY27), the council recorded 6 in favor and 5 against. The council also voted to schedule a Tuesday work session to revisit the income tax rate and the property tax credit for income tax offset so alternative revenue scenarios can be examined before resolutions are drafted.

The council’s action is a straw vote, not the final adoption of rates. Under state rules counties may only adopt prospective rate changes effective Jan. 1 of a future year; staff reminded the council that distribution timing and a three‑year phase‑in mean the full fiscal effects unfold over multiple years. Council staff said the income tax resolution will be drafted based on the straw votes and placed on the Wednesday agenda for formal consideration, with final reconciliation and adoption actions to follow later in the budget calendar.

What’s next: staff will prepare the income tax resolution to reflect the council’s straw vote, and the council will reconvene for a scheduled work session Tuesday to allow further review and any alternative proposals before final votes are taken later in the week.

Quote selection (representative):
"Moving to a progressive income tax actually means we have a loss of revenue," Mr. Smith said, urging members to consider offsets. Vice President Balcom said of her amendment: "Most importantly is it keeps the proposed progressive tax structure in place... but it also lowers the cost of the new structure by about $27,000,000."