Busch pushes tax alternative on slots, budget

House Speaker Michael E. Busch rammed a $670 million tax package through two committees in the House of Delegates yesterday, brushing aside a threatened veto from Gov. Robert L. Ehrlich Jr. and concerns from conservative members of his own party.

Debuting with three weeks to go in the General Assembly session, the proposal sets the stage for a confrontation with the Senate and the governor over taxes, slots and the budget. Busch said the tax proposal was a fairer way to pay for an unfunded long-term education reform plan than the governor's initiative to legalize slot machine gambling.

Within hours of Busch unveiling a sweeping tax proposal to a caucus meeting of House Democrats, two committees endorsed a proposal that would increase the state sales tax rate from 5 percent to 6 percent, impose a higher income tax bracket for the wealthiest 3 percent of residents and raise an additional $145 million from the titling fee on automobiles.

Ehrlich called the proposal unacceptable and decried the speed at which lawmakers embraced it yesterday.

"The process here is completely and utterly flawed," he said at an evening news conference, his second of the day on the tax proposal.

While the plan appears expansive, the impact on the average Maryland family would be modest, Busch said. His proposal would raise slightly more than $1 billion in new taxes, but also lowers by $320 million the state portion of property tax bills on homes and businesses.

A family with $100,000 a year in household income would pay $194 more in sales taxes at a 6 percent rate, legislative analysts say.

But if that family lived in a $300,000 home, the sales tax increase would be countered by a decrease of $184 on state property taxes, for a net rise of $10.

The proposal also contains $30 million in income tax credits for the state's lowest earners.

"The average family will pay $20 a year to fund their education system and their budget," Busch said. "I would suggest to you that that's a better solution than asking Marylanders to gamble $23 billion a year at the racetrack, hoping to make $600 million a year to go to their education fund. No responsible person takes that methodology."

Ehrlich said he would veto the initiative if it came to his desk, even if the decision meant throwing the budget out of balance and forcing the General Assembly to work beyond its scheduled April 12 adjournment.

"You clearly have some folks insistent on the old way of doing business around here, which is: Have a problem, spend too much, have a recession and raise a tax," the governor said. "It's not why we were elected. It's not what we are about."

But Busch said that traditional tax increases were a more "fair and responsible" way to raise revenue for education.

Demonstrating control over Democrats in the House, Busch unveiled his proposal at a closed-door 11 a.m. meeting of a divided party caucus and saw it pass the Ways and Means Committee as amendments to a budget-balancing bill less than seven hours later.

Concerns of conservative Democrats were evident an hour later in the House Appropriations Committee, where the package appeared to fail on a 13-13 tie vote, with six Democrats joining with seven Republicans in opposition.

The committee chairman called a short recess, and two Democrats - Dels. Mary-Dulany James of Harford County and Steven L. DeBoy of Arbutus - changed their votes.

The governor was troubled by those decisions and said yesterday evening that he would help educate voters which conservatives voted for the plan. "They will be held accountable," he said. "The people will be reminded by this administration."

James said later "that sounds like a threat," but declined to explain her vote switch.

DeBoy said he changed because he thought a vote was needed in the full House.

If the tax package passes the full chamber, House and Senate negotiators would meet to hammer out differences. The taxes were included yesterday in a revenue bill that is separate from the state's $23.6 billion budget for the fiscal year that begins on July 1, but is needed to balance the spending plan.

"I think it's a plan that deserves consideration," said Senate President Thomas V. Mike Miller Jr., a slots proponent. But, Miller said, "I don't want to speculate" on what the Senate would do if it receives the plan.

Democrats hold 98 of 141 seats in the House, and 85 votes are needed to overturn a veto.

Many Democrats appeared morose as they left the caucus meeting where the speaker made his case, knowing they would soon be asked to take a difficult vote on taxes that could be for naught if the Senate and Ehrlich reject the proposal.

Some Democrats wanted to reject the governor's slots plan outright and force him to either accept new taxes or make the drastic budget cuts he has long promised in a year.

"The budget is balanced for the next year," said Del. Peter Franchot. "That's why some of the glum faces were coming out of the caucus. They were asking 'Why now?'"

Franchot also said he was concerned that Busch's proposal could be simply a bargaining position for a final compromise that includes slot machines and taxes.

Conservative Democrats are expressing their displeasure. Del. John L. Bohanan Jr. of St. Mary's County voted against the plan in the Appropriations Committee. "When you talk about raising sales tax or any tax, people's ears perk up in an area like mine," he said earlier.

Democrats said that Ehrlich's no-new-taxes pledge is dishonest, because the governor has proposed hundreds of millions of dollars in new taxes since taking office. Ehrlich increased the state property tax last year and wants to implement $30 a year fees on most families to help clean the Chesapeake Bay.

Busch said he was not troubled by Ehrlich's veto threat. "When the pros and cons are seen, I think it will be embraced by the vast majority of Marylanders," the speaker said.

The House plan does not fully close Maryland's gap between projected revenues and expenses. At the end of the fiscal year beginning July 1, the state would have an $840 million surplus. But by fiscal year 2007, a $300 million deficit would reappear, and it would grow to $1.1 billion by fiscal year 2008. "We still need another revenue source," Hixson said.

She said the legalization of slot machines remains a possibility as that additional source. "It's still on the table," she said.

Sun staff writers Howard Libit and Michael Dresser contributed to this article.