A whopping budget battle is shaping up in Annapolis, where the leaders of the House of Delegates and Senate floated widely divergent proposals Friday to raise income taxes as part of a plan to close a $1 billion shortfall.
The Senate is considering a measure that would raise the income tax for almost every Marylander by a quarter of a percent, effectively rolling back a tax cut made 15 years ago, key senators said.
The House is looking at a plan that would hit the top 7 percent to 10 percent of earners with a steep increase but leave everyone else alone, said House SpeakerMichael E. Busch.
Neither of those plans looks anything like Gov.Martin O'Malley's proposal to increase the taxes paid by the top 20 percent of wage earners by reducing their exemptions and deductions.
But while Senate President Thomas V. Mike Millerand Busch stressed that they are looking at making deeper cuts than O'Malley has proposed, it's clear that all of them are talking about raising income taxes in one way or another. All three men are Democrats.
A spokesman for O'Malley did not comment on the House plan but distanced the governor from the Senate idea.
"The governor put forward a modest capping of deductions and exemptions on the highest earners," said spokesman Rick Abbruzzese. "His proposal did not include an across-the-board income tax increase on all of Maryland's families."
He added: "There are going to be a number of conversations over the next couple of weeks about the budget."
Republicans in the General Assembly are dismayed by the tax proposals. "They are going back to the well of Maryland families," said Sen. David Brinkley, a Frederick County Republican who sits on the Senate Budget and Taxation Committee. "Those who have kept their jobs are fortunate, but they are going to take more out of their pockets."
The Senate, the chamber handling the budget first this year, has scheduled a hearing Tuesday on what senators are calling a "doomsday" budget proposal that would put the state's books in order entirely by reductions to government spending. But Miller has made clear he does not favor a cuts-only approach to balancing the budget.
Brinkley believes that the Senate leadership's list of "massive cuts" will be written in such a way that they would go into effect only if an across-the-board income tax increase fails.
Democratic leaders from both chambers are trying to solve the same problem. The General Assembly must by law pass a balanced budget, and so legislators must find a way to address the $1 billion shortfall.
But Miller and Busch both want to reject O'Malley's proposal to come up with $240 million of that by shifting part of the cost of teacher pensions to the counties in a single year. Slowing down the transfer means the state has to make up revenue in other ways.
The two chambers will have to come to some kind of agreement by April 2, the General Assembly's self-imposed deadline for passing a budget.
Both chambers are homing in on the income tax instead of other proposals like expanding the sales tax to services.
"The House right now is more inclined to look at cuts to the budget ... and a high-income tax rate adjustment," said Busch. He said the plan under discussion would hit the top 7 percent to 10 percent of taxpayers "without putting other tax burdens on the citizens of Maryland."
Busch said delegates are looking at increasing taxes on those who make more than $200,000 a year. A top Democratic aide said delegates are considering making the top tax rate about 6 percent. Currently, earners making more than $200,000 pay 5 percent in income taxes. Those making more than $500,000 pay 5.5 percent.
The plan is similar to the millionaires' tax that the General Assembly imposed from 2008 to 2010. During that time, earnings over $1 million were taxed at 6.25 percent.
But Miller said Friday that taxing only the wealthy does not provide enough revenue to make up for shifting the pension costs to counties over the course of three years, as his chamber is discussing.
"You have to ... bring the [tax increase] down to what you or I might consider 'middle America' to generate enough money to allow the pension shift to be phased in," he said.
Miller stressed that an across-the-board income tax increase would "leave in place" all of the larger exemptions and deductions that the General Assembly allowed in 2007.
"If we raised the rate a little bit, in [all tax brackets] they would still be paying less income tax than they were in 1997," Miller said.
The idea is one that several senators have mentioned privately in recent weeks and that is being pushed by Sen. Roger Manno, a Montgomery County Democrat. Manno's plan is being sold as "a rollback" of the income tax cuts made under Gov. Parris N. Glendening in 1997.
The Manno plan would cost the average Maryland family — a family of four making between $50,000 and $100,000 — $44 a year, according to a top Democrat familiar with the proposal.
The House version of the bill, offered by Del. Anne Healey, a Democrat fromPrince George's County, also would raise the ceiling on how much counties can levy in "piggyback" income taxes, allowing them to impose a rate as high as 3.325 percent. Currently, the state-mandated cap is 3.2 percent.
Baltimore City is one of the four jurisdictions that now tax at the highest rate. Howard, Montgomery and Prince George's counties are the others.
Baltimore Sun reporter Michael Dresser contributed to this article.