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Democratic tax plan faces challenge from within

Montgomery delegates to propose sales tax increase

By Michael Dresser and Annie Linskey, The Baltimore Sun

9:08 PM EDT, May 14, 2012

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A carefully choreographed strategy to raise state income taxes to stave off so-called doomsday budget cuts faces a challenge in the General Assembly after several Democrats defied party leaders with a proposal to raise the sales tax instead.

The brewing discontent within the Montgomery County House delegation stems from a belief that the governor's plan relies too heavily on their wealthy constituents. And though it faces little chance of passage, the proposal reveals a geographic fissure within the ruling Democratic caucus while underscoring the difficulty of forging consensus on a tax increase.

Members started discussing the alternative plan as the General Assembly convened Monday for a special session to resolve a budget standoff that left the state with a spending plan abhorred by the majority Democrats and cheered by the Republican minority.

Gov. Martin O'Malley called the special session to give the Assembly a second chance to pass two measures that died on the last night of the session last month: a bill to raise income taxes on the top 14 percent of Maryland earners and another to shift part of the costs of teacher pensions to the counties.

The Senate took up the task with brisk efficiency, holding a lightning-fast committee hearing on the bills before sending them to the Senate floor, where a flurry of Republican amendments were debated and soundly rejected Monday night. Both bills received preliminary approval; they will come up for a final Senate vote Tuesday.

Monday's test votes indicate that Senate President Thomas V. Mike Miller is likely to hold his Democratic caucus to the deal he crafted with House Speaker Michael E. Busch and O'Malley over the past several weeks.

But in a sign that the raw feelings left over from the way the regular session ended have not been completely soothed, Miller proposed a new rule that would require lawmakers to focus only on the budget if a spending plan was not adopted by the 82nd day of each regular 90-day session.

He said it was "just a proposal" that members should "digest."

"The last day of session should have never happened," Miller said.

It is on the House side where the leadership plan, which essentially preserves the deal that was struck but never ratified by the two chambers on the final night of the regular session, appeared likely to run into some turbulence.

In addition to solid Republican opposition, the plan also faces resistance from some Democrats who are unhappy with what they consider the paltry amount of money it will raise and what they see as its overreliance on the dollars of wealthy Montgomery residents.

Montgomery County taxpayers would contribute 40 percent of the $154 million in new state revenue, according to a legislative analysis. By comparison, Baltimore City residents would contribute only about 4.2 percent.

"I don't like the income tax plan. I don't think it's fair to the taxpayers," said Del. Charles Barkley, one of the Montgomery County Democrats supporting a sales tax solution.

Barkley said he is leaning toward introducing a floor amendment that would substitute a sales tax increase of 1 cent on each dollar, offset for lower-income Marylanders with an increase in a tax credit that benefits them. The plan would push the state's sales tax rate to 7 cents on the dollar.

Backers say the scheme would raise from $700 million to $750 million, more than twice the $264 million in the leadership plan. They say they would devote $300 million of the money to mass transit, a move that could free up other transportation funds for roads, and use the rest to avoid the doomsday cuts and close the long-term gap between the state's spending and revenue trends known as the structural deficit.

The plan appears to have little chance of passage.

Republican delegates are no more attracted to the idea of a sales tax increase than they are to the income tax plan on the table. And the sales tax idea seemed to be gaining little traction in other large Democratic House delegations. Lawmakers from Baltimore and Prince George's counties, the other two large all-Democratic delegations, appeared to be standing firmly behind Busch.

Nor was the measure garnering much interest in the Senate.

But the sales tax amendment could become significant if enough members take the position that it is the only revenue measure they will support.

During the regular session, the House passed its tax plan by an 81-56 vote — 10 more than the minimum needed for passage. The compromise then reached by House and Senate lawmakers closely resembled the original House bill, so approval in that chamber ordinarily would be considered a pro forma matter.

But Busch is likely to lose at least two votes to absences, and he can't spare many more if the special session is to avoid the kind of suspense that neither he nor Miller nor O'Malley want after the chaotic end to the regular session.

Barkley's vote is of little concern because the income tax plan passed without his support in March. But Montgomery County Dels. Benjamin F. Kramer and Sam Arora, who voted for the measure in the regular session, are not committed to doing so in the special session.

Kramer, who said he expects Barkley to take the lead on offering the amendment, said the income tax package does not generate enough revenue to meet the state's needs.

"If we're going to take a hard vote for taxes, we might as well vote for something that's going to generate long-term revenue," he said.

Kramer said House leaders can't count on his vote for the income tax increase if the sales tax plan fails.

"I, for one, have made no commitment on the current proposal," he said.

Arora said he's troubled by the cost of the income tax to his county.

"A lot of my colleagues are looking to see if there are ways to make this a more beneficial package for Montgomery," he said.

Other members of the Montgomery delegation said they had no interest in the sales tax plan and doubted it would get much support.

Del. Anne Kaiser said she understood that no more than three or four of her colleagues were behind the plan. Kaiser said she was fully commited to the plan backed by Busch, which would stave off the deep cuts to K-12 schools, higher education, Medicaid and other programs under the doomsday scenario.

The House leadership was working aggressively to prevent any erosion of votes for the income tax plan.

"We are asking people to support what they agreed to in the session," Busch said Monday night.

The speaker sounded confident that his plan would pass, but the going has not been easy. In the past month he's made the rounds in Maryland, popping in at county council meetings in Montgomery and Prince George's to talk with local lawmakers. He also appeared at a recent Baltimore City Council meeting.

The House Democratic Caucus received a stern lecture Monday from Treasurer Nancy K. Kopp, who warned them that Wall Street would downgrade the state's AAA credit rating if the budget plan collapsed again, according to several who attended the meeting.

The sales tax idea is similar to one floated toward the end of the regular session by O'Malley, but a spokeswoman for the governor insisted the current proposal doesn't have his fingerprints on it.

Press secretary Raquel Guillory said O'Malley is firmly behind the plan on which he, Busch and Miller agreed.

The special session had not even convened before that plan came under attack.

Republican lawmakers began the session with a protest, denouncing O'Malley as a liar and vowing to fight the Democrats' plans to shift pension costs from the state to the counties and to raise income taxes on individuals with incomes over $100,000 and couples making more than $150,000.

During a morning news conference, several dozen GOP senators and delegates directed much of their fire at the governor.

House Minority Leader Anthony J. O'Donnell, a Calvert County Republican, said he heard on the radio as he traveled to Annapolis that lawmakers were going to cut an additional $600 million in spending — an interpretation he said had come from the governor's office.

"How can the chief executive of Maryland … lie to the citizens of Maryland in this manner?" he said. ""We're coming here to raise their taxes."

Like other Republicans, O'Donnell promised a battle.

"We're the voice of opposition, and we're going to give them heck over the next three days," he said.

michael.dresser@baltsun.com

annie.linskey@baltsun.com

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