House leaders considering tax increases for Md. Capital gains tax, cigarettes studied


ANNAPOLIS -- House Speaker R. Clayton Mitchell Jr., an implacable foe of "major" tax increases, said yesterday he and other House leaders might support a patchwork of lesser increases to balance next year's budget.

The speaker and other House leaders said the new revenue plan now taking shape likely would include:

* One of two taxes on cigarettes: a 20-cent increase in the 13-cents-per-pack excise tax on cigarettes, which would raise about $86 million. Or, a different taxing approach that would apply the state's 5 percent sales tax to the per-package cost of cigarettes, raising about $34 million.

These tax measures gain added momentum from health interests, which see them as a curb on smoking.

* Closing a loophole in the Maryland capital gains tax. Currently, 40 percent of capital gains are not taxed. Only a half-dozen states give such a break. If the tax were applied to gains only by persons making over $200,000 a year, the state would collect an additional $40 million for the state and $20 million for local government.

* A series of fee increases recommended by the Department of Transportation to bolster temporarily the depleted Transportation Trust Fund and permit highway construction projects to resume through the next year. A decision on whether to raise the gasoline tax would be postponed until 1992.

* Sales taxes on photographic and printing equipment, newsprint, asphalt machinery, used mobile homes and other items are also under consideration.

The proposed taxes would help to close what legislators see as a $191 million gap in next year's budget. The shortfall includes a $115 million revenue deficit plus $76 million to offset a proposed budget-balancing transfer from the state's Transportation Trust Fund that House leaders have refused to make.

"It's fair to say there's been some consideration of closing [sales tax] loopholes," Mr. Mitchell said. He said he was not sold on the transportation fee proposals advanced by others, but he said the House would be willing to consider them as well.

Key members of the House Ways and Means Committee, who heard five hours of testimony yesterday in support of and against the governor's bill to raise the state's gas tax, said the public was in no mood for more taxes.

"I don't think we're going to have a tax," predicted Chairman Tyras S. Athey, D-Anne Arundel. "I just don't think the mood is there for it."

Gas station dealers, the trucking industry and the Automobile Association of America all opposed the proposed 5 percent tax on gas, saying road users were paying too big a share for port, airport, mass transit and other transportation expenses.

Speaker Mitchell said he remained determined to cut spending. A list of cuts totaling $35 million is pending before the budget committees now. He said he had not seen "a lot of pain" from cuts to government programs so far.

"I haven't had a Cabinet secretary in my office yet saying, 'What you're doing is ridiculous.' "

The speaker's reluctant and still incomplete change of heart that allows him to consider even "minor" tax increases is occurring in the wake of persistently discouraging revenue estimates.

He and other House leaders said they hoped to avoid reducing the state's commitment to public education -- as suggested at one point by the Schaefer administration -- because that could force the counties, some of which have their own serious budget problems, to consider property tax increases.

The Schaefer administration, meanwhile, continues to nurture some hope, however fleeting, that the legislature will consider its major tax restructuring proposals. An administration spokesman said yesterday that "piecemeal" solutions -- such as those now under consideration by the House leadership -- could solve immediate state budget problems but fail to address the more fundamental revenue problems of Baltimore and other poor subdivisions.

At this point, the administration spokesman conceded, little support is evident for the $800 million tax proposals offered by R. Robert Linowes, the Montgomery County lawyer, and his Linowes commission.

The budget pictures in relatively wealthy Montgomery County and impoverished Baltimore tell the story, he said.

Both subdivisions will have to appeal for a change in current state law in order to qualify for their share of state aid to education. The law prescribes a certain "maintenance of effort" in each subdivision -- and neither Baltimore nor Montgomery County seems likely to reach that level for the 1992 budget year, Mr. Mitchell said.

"So," he said, "you have both ends of the spectrum in trouble. The recession has hit everyone."

Legislative leaders said the emerging revenue plan could draw sufficient support to permit passage from Baltimore and from Montgomery and Prince George's counties. All three face severe budget deficits.

Despite the fit of the proposed taxes and the needs, Mr. Mitchell said he saw little sentiment for tax increases, whatever the cost.

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