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General Assembly raises income tax on top 14 percent

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It took three carefully scripted days, but Maryland's ruling Democrats finally put in place the budget deal that eluded them in the waning hours of the state's regular session last month.

The revenue package approved by the House on Wednesday will raise income tax rates on 14 percent of Maryland taxpayers while shifting some teacher pension costs to counties.

The adjournment of this week's special session effectively ended the first budget impasse the state had seen in two decades. The new taxes will stave off more than $500 million in spending cuts, much of it in the form of aid to local governments, that would have taken effect July 1.

Gov. Martin O'Malley, a Democrat, said he was "very appreciative" that the General Assembly approved the new revenue measures.

"These have not been easy years," O'Malley told reporters after the final vote. "What has held us in better stead than most other states is that we have been applying a balanced approach."

He stressed that the state has avoided deep cuts to education and invested in tax credits intended to attract high-tech and bio-tech firms to the state.

Throughout the special session, Republican lawmakers played the role of the loyal opposition — taking turns deriding the plan — but gaining no traction.

"We will fight you continuously on this issue," House Minority Leader Anthony J. O'Donnell said during the floor debate Wednesday.

The Southern Maryland Republican acknowledged that Democratic leaders had the support they needed to raise taxes.

"Of course we know what is going to happen with this vote, it is not a mystery," O'Donnell said.

GOP delegates predicted the increases would bring dire consequences — choking job growth, motivating some residents to leave Maryland, chasing companies across the state line and pushing Maryland a little farther down the road to socialism.

Democrats stressed the importance of maintaining Maryland's top-ranked education system, holding down university tuition and preserving the state's AAA bond rating.

After almost three hours of debate, the House of Delegates voted 77-60 to approve an income tax increase on individuals making more than $100,000 and families making more than $150,000.

The measure, which is projected to raise an additional $250 million, was the largest part of a $264 million revenue package. It will increase rates on about 14 percent of Marylanders by one-quarter to three-quarters of a percentage point while also phasing out personal exemptions.

The bill also increases taxes on small cigars and smokeless tobacco products to bring their costs more into line with those of cigarettes. Advocates described the increase as a public health measure.

The House, on an 86-51 vote, also approved a companion measure that shifts teacher pension costs to the counties. Republicans say the move will cause the counties to increase local taxes. Supporters of the change contend that sharing the costs will give counties an incentive to hold down pension increases.

The measures adopted Wednesday essentially ratified the deal reached by House and Senate negotiators about 8 p.m. on the last night of the regular session last month.

That agreement, which ended a lengthy standoff between the two chambers, came too late for the Senate and House to hold a final vote before the session ended at midnight. The result was that a series of contingency cuts — described by Democrats as the "doomsday" budget — would have automatically gone into effect.

O'Malley worked with Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch to hammer out a plan under which the legislature would return to Annapolis to fix what they considered a broken budget without taking on any other issues that might distract lawmakers' attention.

"The special session for all intents and purposes went according to what he had planned in the process," Busch said. But he said it would have been better to have gotten it done during the 90-day session.

The Senate had passed identical measures on Tuesday and went into session only briefly on Wednesday to accept the House's work and formally adjourn.

Many of the votes for the budget package came from the large, all-Democratic delegations from Baltimore city and Prince George's and Montgomery counties, each of which faced the loss of tens of millions of dollars in state aid to K-12 education and community colleges under the "doomsday" budget.

Several Montgomery House Democrats broke ranks, however, in part because more then 40 percent of the additional money raised through the income tax will come from their county.

The special session did come with some notes of irony. Democrats, who overwhelmingly voted in favor of the original budget bill, were scrambling to replace it. Meanwhile, the "doomsday" budget won high praise from Republicans, few of whom voted for it in the regular session.

The most-quoted person in the debate by far was Democratic Comptroller Peter Franchot, who distributed a letter before the session opposing the tax increase. Several GOP delegates gleefully read portions of Franchot's message in making their case that taxes shouldn't be increased in a weak economy.

O'Malley has said he might call a second special session this year to deal with a possible expansion of gambling in Maryland.

annie.linskey@baltsun.com

michael.dresser@baltsun.com

The budget deal

•Income tax rates will increase 1/4 to 3/4 of a percentage point for individuals making more than $100,000 and couples making more than $150,000.

The same taxpayers will see a phase-out of personal exemptions.

Deal averts more than $500 million in spending cuts in such areas as K-12 schools, higher education, Medicaid, law enforcement and state employee raises would be averted.

Taxes will increase on some tobacco products other than cigarettes, including small cigars and smokeless tobacco. Premium cigars are exempt.

Part of the cost of teacher pensions will shift from the state to counties over a four-year phase-in period.

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