Leaders in the House of Delegates are seriously considering a temporary income tax surcharge on the state's wealthiest residents to balance the budget, House Speaker Michael E. Busch said yesterday, setting up a confrontation with the Senate and Gov. Robert L. Ehrlich Jr.
"There's a good chance," Busch said, that the House Ways and Means Committee will approve a bill that would raise the income tax rate from 4.75 percent to 6 percent for individuals earning at least $100,000 and families earning at least $150,000.
"It has some appeal, because it was used before," Busch said, referring to the state's previous fiscal crisis, which was at its peak in 1992. At the time, the measure's primary advocate was Sen. John A. Cade, a Republican respected for his fiscal acumen.
A single person earning $125,000 a year would pay $128 more in taxes under the plan. A family of four earning $175,000 would pay $47 more. The increase would be rescinded after two years.
The measure would be part of a package of revenue-raising bills the House intends to use to replace the $395 million in slot-machine licensing and operating cash that Ehrlich included in his spending plan for the budget year that begins July 1.
The final shape of the package is fuzzy, Busch said. "We're going to finalize it this week and vote on it next week," he said.
But a House proposal that includes an income tax increase faces fierce opposition from Ehrlich and Senate President Thomas V. Mike Miller. That the tax is still under discussion foreshadows the "train wreck" many fear could envelop Annapolis in the coming weeks, with major players failing to reach an agreement over slots and the budget before the Assembly is to adjourn April 7.
"The governor has made it clear that he will veto any package containing sales and income tax increases," said Ehrlich spokeswoman Shareese N. DeLeaver. "It's not like he's changed his line of thinking since the session began."
State Democratic Party Chairman Isiah Leggett reiterated his concern that leaders in his party have yet to lay a foundation for higher taxes, largely because they have not exposed fully what he said are flaws in Ehrlich's spending plan.
"When you have alternatives in advance of a clear debate, it confuses the issue," Leggett said. "I'm still not satisfied that they debated the merits of his budget first."
The income proposal was one of nine tax and revenue bills heard by the Ways and Means Committee yesterday. Others would close corporate tax loopholes, improve tax compliance and raise sales taxes. If all were enacted, they would generate more than $1 billion a year combined.
The state faces a $1.2 billion gap between revenues and expenditures next year; by law, legislators must approve a balanced budget.
Yesterday's hearings made clear that many of the House revenue ideas face heavy opposition from well-organized interest groups that wield influence in the capital, including banks, retailers and gasoline sellers.
"We think that this bill represents bad tax policy," said Dawson Grove, a certified public accountant from Frederick, testifying against a bill that would close certain corporate loopholes by, in part, taxing income that some companies divert to shell holding companies in Delaware. "Everybody's gotten an education that the loophole is in the eye of the beholder."
Busch said he thought the income tax plan received the friendliest reception, improving its chances. Still, he called the corporate loophole-closing legislation the "No. 1" priority.
"The current tax structure is too easy to avoid," said Busch chief of staff Thomas Lewis. "Individual taxpayers can't form holding companies. They have to pay for schools and roads."
Earlier yesterday, a Washington-based policy group, Citizens for Tax Justice, released a report showing that Maryland's income tax structure was unfair to working- and middle-class residents, because 80 percent of all taxpayers were in the highest tax brackets. The top rate applies to all who earn more than $3,000 a year.
"Washington Redskins owner Dan Snyder pays the same income tax rate as his chauffeur," said Sean Dobson of the advocacy group Progressive Maryland. "We can do better than that."
Ways and Means Committee members said they were considering altering the income tax proposal to raise the income limits.