Fate of tax plan unsure

The Baltimore Sun

The fate of Gov. Martin O'Malley's plan to overhaul Maryland's tax structure remained unclear yesterday after legislators held marathon hearings on his $1.1 billion package.

Liberal groups, religious organizations, labor unions and others came out in force to support the plan, which they said would make Maryland's tax structure more progressive. O'Malley has proposed a series of increases, cuts and expansions to the sales, tobacco, income and property taxes.

Small-business owners and their advocates were at least as vigorous in their arguments that the package would make Maryland less-competitive and hurt the economy.

But the legislators, who will ultimately decide whether O'Malley's ambitious proposals succeed or fail, gave little hint of where their votes will fall. Republicans, who have come out against all tax increases, asked a few critical questions, while Democrats mostly sat and listened.

"I don't think we know quite yet" what will happen, said Sen. Ulysses Currie, the Prince George's Democrat who chairs the Budget and Taxation Committee. "I would think there is support for most of the package, but we don't know."

The prospects for passage likely will become clearer in the coming days. Senators and delegates will hear testimony today on the governor's proposal for slot machine gambling -- he favors a referendum in November 2008 -- and will work on his bills and others tomorrow and possibly Sunday. During that time, the Democratic leaders of the General Assembly also plan to start counting votes to see where consensus may lie.

O'Malley's proposal calls for an increase in the sales tax from 5 percent to 6 percent and an expansion of that levy to cover a few more services; changes in the state income tax that would save money for low- and middle-income workers but cost top earners significantly more; a cut in the property tax of 3 cents per $100 in assessed value; and a doubling of the cigarette tax to $2 a pack.

In all, those proposals would raise about $1.1 billion annually. O'Malley would close the remainder of Maryland's projected $1.7 billion budget shortfall with slots revenue.

Although legislators have advanced a variety of other ideas, the leadership in the General Assembly appears inclined to work within O'Malley's framework.

"Everybody is asking us if we're working on another bill. We're not," said Del. Sheila E. Hixson, the Montgomery County Democrat who chairs the Ways and Means Committee. "We're going to be tweaking it, making some changes, but I don't see us not considering the sales tax, not considering the income tax."

However, legislators are looking for more budget cuts. O'Malley made about $200 million in cuts to the current operating budget over the summer and has proposed further spending reductions, principally a slowdown in the planned annual increases to K-12 education spending called for in 2002 legislation known as the Thornton plan.

Yesterday, the House Appropriations Committee considered $760 million in other suggested cuts, including further reductions to education, elimination of cost-of-living adjustments for public employees and the shifting of some expenses to local governments.

"People are interested in more cuts because that's what they're hearing from their constituents," said Del. Ann Marie Doory, a Baltimore Democrat.

Some of the strongest support for the governor's plan yesterday came from local officials, who said they worry that cuts on the state level would hurt the counties. If the state doesn't increase taxes, counties likely will have to, and their only option is raising the property tax, said Baltimore County Executive James T. Smith Jr.

"You're being asked to impose taxes largely on people who can afford to pay," Smith said. "If you can't come to a solution, you're doing a disservice to the taxpayers because the majority of them are going to have to pay more through the flat property tax."

Much of the seven-hour hearing was predictable. Health care advocates praised the proposed cigarette tax, but convenience store owners, who said they make as much as 30 percent of their profits from cigarette sales, opposed it.

Groups that would be subject to new taxes -- such as health club owners, massage therapists and rental property managers -- also showed up to object.

"Housing is not a luxury item," said Maryland Association of Realtors President Carol A. Maclure.

Liberal groups urged support for the package, saying O'Malley had struck a good balance.

"We wouldn't be supporting a sales tax increase alone, or some of the other elements of the package," said Henry Bogdan, director of the liberal-leaning Maryland Budget and Tax Policy Institute. "But we believe the overall package is about as fair as you can make it."


Today in Annapolis

The House Ways and Means Committee and the Senate Finance Committee will hear testimony this morning on Gov. Martin O'Malley's proposal to legalize slot machine gambling. Under the governor's plan, voters would consider a constitutional amendment next year to allow up to 15,000 slot machines at five sites - one each in Anne Arundel, Allegany, Cecil and Worcester counties and Baltimore City.

Also today, the House Environmental Matters Committee will hold a hearing on the Green Fund bill. It would assess an annual fee on property based on the size of hardened surfaces - areas impervious to rainwater - with revenue used to help clean up the Chesapeake Bay and its tributaries. The House Appropriations Committee will hear a briefing on mandated budget appropriations.

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