Maryland lawmakers were never close to tax-cut deal, negotiators say

Erin Cox
Contact ReporterThe Baltimore Sun
A breakdown in negotiations Monday night cost Maryland taxpayers roughly $300 million.

Maryland Democrats wanted income tax cuts this year. Republicans wanted them, too.

House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller personally discussed the details. Gov. Larry Hogan said he would sign whatever tax package came to his desk.

Yet lawmakers were never close to a final deal, several negotiators said.

The General Assembly adjourned at midnight Monday having enacted only one notable tax bill — a $37.5 million credit for aerospace giant Northrop Grumman — despite widespread agreement that Maryland's working poor, middle-income earners and business communities deserve tax relief.

Lawmakers had spent more than two years studying which taxes to cut and by how much. They even formed a commission led by business leaders to make recommendations.

Negotiations broke down over how to apportion the roughly $300 million in tax cuts that budget gurus agreed the state could afford.

The complex deal was, at times, linked to advancing a bill that would require employers to provide paid sick leave and to a proposal that would have revamped how the state taxes corporations, according to a half-dozen people involved in negotiations.

The debate came so late in the 90-day session that the chasm between the more liberal House of Delegates and more conservative Senate could not be bridged.

"It's a shame," said Minority Leader J.B. Jennings, a Baltimore County Republican.

"It's disappointing, it's very disappointing," said Del. Jay Walker, a Prince George's County Democrat who led the House tax negotiators.

Even in dissecting what went wrong, Busch and Miller talked past each other Tuesday, citing different factors for the lack of agreement and suggesting that the outcome might have been different if the Republican governor had tried to broker a compromise.

Hogan laid blame squarely on the Democratic presiding officers, and his aides said the governor was not invited to the negotiating table.

"We thought we were this close on real, meaningful tax relief," Hogan said. "And unfortunately, the speaker of the House and Senate president dropped the ball and failed to get it done."

Both chambers had agreed to an expansion of the Earned Income Tax Credit, a refundable tax break widely considered the government's best tool to lift people out of poverty. The expansion would have put more cash into the pockets of the state's working poor and allowed a greater number of people to qualify for the credit.

That measure, however, was tied to at least three other tax proposals, including one that would have cut taxes for households earning up to $150,000. A family of four making that much would have seen a cut of $150 a year under the House proposal. The Senate version would have trimmed that same family's annual tax bill by $64.

A Senate proposal would also have cut tax rates for households earning between $150,000 and $300,000, with earners at the top of that bracket getting back about $495 a year. For House Democrats, that was too generous, and they demanded a smaller break for wealthier people.

At one point, they also demanded that the Senate pass a bill that would grant paid sick time to most Maryland workers.

"We did tax cuts across the board," Miller said Tuesday morning. "And the House, which is more progressive than the Senate … they wanted simply to help the people on the lower end of the economic spectrum. And we couldn't bridge the gap."

Meanwhile, Busch said the Senate balked at the House's proposal to adopt a tax system called "single sales factor." The proposal was a top priority of the state's Chamber of Commerce and would have changed how corporate taxes are calculated, potentially reducing the bill for Maryland-based companies or those with large workforces in the state.

The Senate, by contrast, wanted to reduce the tax rate for small businesses. Since many owners pay their business taxes through personal income tax returns, those small businesses pay a higher tax rate than corporations.

While a top Hogan aide played a key shuttle diplomacy role in forging a compromise on sweeping criminal justice legislation Saturday, the administration took no such role in the tax cut deal.

"We were not involved at that level," said Joe Getty, Hogan's chief legislative officer. He blamed timing for preventing a tax-relief deal.

"If you hold everything until the Saturday before session ends and then you bring it out, you've got a good chance of meltdown," said Getty, a former state senator. "That's how the legislative process works."

The disagreement on how far up the income scale the tax cuts should go and whether the state should adopt new corporate tax strategies was never close to resolution, several negotiators said.

"We never got to substantial, middle-of-the-road discussions," said Sen. Andrew Serafini, a Western Maryland Republican on the Senate's negotiating team. Tangling income tax cuts with paid sick leave and corporate taxes "became a bridge too far," he said.

Baltimore Sun reporters Michael Dresser and Pamela Wood contributed to this article.

ecox@baltsun.com

twitter.com/ErinatTheSun

Copyright © 2017, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
34°