Legislators divided on tax changes But a 5% sales levy on cigarettes likely


ANNAPOLIS -- The chairmen of the House and Senate tax committees said yesterday that to help balance next year's budget, the General Assembly is likely to add cigarettes to the list of items subject to the state's 5 percent sales tax, in addition to existing excise taxes.

But beyond that, delegates and senators seemed far apart on what other tax proposals -- if any -- should be adopted this year.

For several days now, House leaders have been pushing another budget-balancing bill by Delegate James C. Rosapepe, D-Prince George's, that would raise the tax on capital gains paid by Maryland's wealthiest residents, those who earn $200,000 a year or more.

But that measure ran into serious trouble yesterday as House leaders realized it probably would not raise as much money as originally believed, and as leaders in the Senate said there was little sentiment for it there.

Delegate Tyras S. Athey, D-Anne Arundel, chairman of the Ways and Means Committee, said he expected his committee to approve the cigarette tax. However, he acknowledged that the panel now may be asked to eliminate the entire Maryland tax preference given to capital gains rather than just limiting the change to higher-income earners.

Under current state law, only 60 percent of capital gains -- the profits earned from the sale of stocks, bonds or property -- are subject to taxation.

Some members of Mr. Athey's committee said yesterday, however, that they might have trouble supporting a change in the capital gains law either way.

"It is a killer in a year when I think we should have no new taxes," said Delegate Elizabeth S. Smith, R-Anne Arundel, who -- like a number of other lawmakers -- noted that she had written constituents saying she would not support any tax increases this year.

Another committee member, Delegate James W. Campbell, D-Baltimore, said he was concerned that the capital gains change would only increase the disparity between the state's haves and have-nots -- specifically between Baltimore and wealthier subdivisions that might take in more revenue as a result of such a change.

House leaders want to use the anticipated $34 million from the cigarette tax plus the estimated $40 million from the capital gains tax to make unnecessary about $74 million in proposed cuts to a list of local aid programs, including the APEX education program and a state program designed to offset the need to raise property taxes at the local level.

"This looks to me like the easiest way to go, but whether we'll have the votes or not, I don't know," said Mr. Athey.

In the Senate, Budget and Taxation Chairman Laurence Levitan, D-Montgomery, said the chamber was in a position where it could go for the cigarette tax.

Without the capital gains tax, the Senate could propose some other tax measure, such as closing various loopholes in the state sales tax, or simply cut more deeply into governmental programs, he said.

Some in the Senate believe a proposed $82 million increase in APEX aid ought to be trimmed back, Mr. Levitan said, because they fear that most of the money will be used for pay raises for teachers at a time state employees are going without raises.

Mr. Levitan said other ideas are also being circulated, including one proposal from Senate Minority Leader John A. Cade, R-Anne Arundel, to borrow as much as $20 million from the Maryland Automobile Insurance Fund. MAIF is the state-run program that insures high-risk drivers.

Mr. Cade could not be reached last night for comment, but according to Mr. Levitan, one possible use for that money would be to help financially troubled Baltimore, perhaps by replacing part of a police aid program cut from the budget by Gov. William Donald Schaefer.

Using MAIF funds, said House Minority Leader Ellen R. Sauerbrey, R-Baltimore County, is preferable to raising taxes, as long as the General Assembly pays the money back.

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