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Budget panel chairman proposes sales tax rise jTC Income tax increases are also suggested


ANNAPOLIS -- The chairman of the Senate's budget committee yesterday circulated to key General Assembly members a detailed proposal that calls for increases in the state sales tax, income tax and local piggyback tax to help balance Maryland's budget.

The $623.4 million proposal from Sen. Laurence Levitan, D-Montgomery, chairman of the Budget and Taxation Committee, also calls for a nickel-a-gallon increase in the state's 18.5-cents-a-gallon gasoline tax, which would raise an additional $185 million to get the state's road building and transit programs moving again.

Mr. Levitan described the two-page proposal as merely "a talking document" and emphasized it has no formal support at this time.

But, insisting that the state's projected $1.2 billion deficit in fiscal year 1993 cannot be eliminated through budget reductions alone, Mr. Levitan said he wanted lawmakers to begin discussing ways to increase state revenues. If the proposal raises more taxes than legislators think are appropriate, $150 million of the new revenue could be used to replenish the state's completely drained "Rainy Day" fund, he said.

In a cover letter to an ad hoc group of 26 senators and delegates appointed to develop a comprehensive deficit reduction plan, Mr. Levitan said: "Please review and digest, with or without Di-gel, the enclosed material so that we can discuss this phase of our problem once we finish with budget cuts."

A subgroup of the so-called "Gang of 26" met in private again yesterday to continue their discussions of possible spending reductions, which most General Assembly leaders agree must occur before the public will even consider supporting an increase in taxes.

House Appropriations Committee Chairman Charles J. Ryan Jr., D-Prince George's, chairman of the ad hoc group, said that final budget decisions still have not been made and that tax ideas have not been discussed.

But others familiar with the deliberations of the group say they have reached these tentative conclusions:

* That state aid to Baltimore and the 23 counties will have to be cut substantially to balance the budget. To offset that, local governments will be allowed to raise their maximum piggyback income tax rate from 50 to 60 percent.

* That several categorical state aid programs, such as property tax grants, transportation revenue sharing and aid for local health programs will be cut. But a long-scheduled $184.4 million increase in state aid for education will be financed in full.

To help financially troubled Baltimore, Sen. John A. Pica Jr., D-Baltimore, and other city lawmakers are pushing a pair of proposals to increase state aid to the city. One would require that 10 percent of the piggyback tax be returned to jurisdictions where the income was earned, not where the taxpayer lives.

That would bring about $38 million to the city, where many workers commute from the suburbs.

The other proposal pushed by Senator Pica is far more complicated. It would establish a formula to send more state aid to jurisdictions whose amount of income tax per capita is a certain percentage below the statewide average. The benefit to Baltimore and other poor jurisdictions would vary depending on what percentage was agreed upon.

"We can't support any part of the package unless it contains considerable relief for Baltimore, and that relief must be deep and permanent," said Senator Pica, chairman of the city's Senate delegation.

Through proposals to relax certain spending mandated by law combined with straight cuts in proposed spending, Mr. Ryan said, his work group has already identified more than $700 million in budget reductions and has not yet finished its work. But he said the group has not discussed Mr. Levitan's pro- posal.

"I won't let them start talking about revenues until we get through all of this," he said.

Whatever the group eventually agrees to is subject to change by the House and Senate presiding officers, by rank-and-file legislators and by Gov. William Donald Schaefer.

House Speaker R. Clayton Mitchell Jr., D-Kent, has steadfastly refused to consider tax changes, although he seemed to bend on the issue a bit yesterday. Mr. Mitchell said he would not look at tax proposals until he is convinced serious attempts have been made to bring costs under control in some of the state's most expensive programs, such as Medicaid, prisons or certain social welfare programs.

But pressed to say what tax he would favor if he were convinced that more revenue was needed, Mr. Mitchell suggested a broad expansion of the state's 5 percent sales tax -- so broad, in fact, that he said it might raise enough additional revenue to permit the 5 percent overall rate to be reduced.

It is an idea that Mr. Schaefer is said to embrace as well.

Mr. Mitchell noted that the state's economy has shifted more from manufacturing to service jobs, but that most service jobs now are generally not taxed.

Mr. Levitan's tax proposal offers an example of how such an expansion might work: It calls for repeal of current sales tax exemptions on the sale of certain types of prepared foods, on newspapers and on telecommunications services. Repeal of those three exemptions alone could raise an estimated $49.5 million.

But he also proposed extending the sales tax to include automotive repairs, which would raise an estimated $95 million, and to appliance repairs, which would bring in another $46 million.

An increase in the rate from 5 to 6 percent would raise $330 million, but Speaker Mitchell said it would hurt businesses in his native Eastern Shore: Customers would drive to sales tax-free Delaware to shop.

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