O'Malley promise on taxes erased

The Baltimore Sun

Gov. Martin O'Malley aimed his pitch for raising some taxes at the same "working families" he wooed in last year's campaign. He promised that he had found a way to resolve Maryland's projected $1.7 billion budget shortfall that would place the burden on the wealthy and big corporations. The vast majority of Marylanders, he promised, would actually come out ahead.

But after a series of amendments the state Senate adopted last week, that appears to be in doubt. The House of Delegates voted to restore some of O'Malley's promised progressivity, but even plan supporters acknowledge that working families are likely to end up paying the same amount or more in taxes.

O'Malley's plan relied on reducing property taxes and lowering income tax rates on the first $15,000 in earnings, neither of which survived in the legislature's plans. He sought to provide a rebate for low-income families to offset a proposed sales tax increase, which both the House and Senate eliminated.

"We're talking about leaving the income tax flat at the lower end. We're talking about increasing the sales tax. We're talking about increasing the [vehicle] titling tax. We're talking about increasing the tobacco tax," said Del. John A. Olszewski Jr., a Democrat from Dundalk. "Governor O'Malley came out and mitigated to the extent possible the impact on your middle-class, blue-collar-type families, and to the extent we're moving away from that, I think it's bad public policy."

Estimates from the nonpartisan Department of Legislative Services show that O'Malley's plan would be a better deal for low- and middle-income households (and worse for high earners) than the plans passed by the legislature. O'Malley has maintained his support for the package, but the amendments have altered his claim that 83 percent of Marylanders would actually pay less under his tax plan.

"The plan I prefer most was the one we put forward that would have allowed 80 percent of us to see their taxes stay the same or go down," O'Malley said after discussing the House plan with delegates Saturday. "But I am only one person in a process that involves 188 people."

His assertion was based on the interplay of the sales tax, personal income tax and property tax. (He didn't count the tobacco tax or car titling tax, which would have significantly altered the calculations for many families.)

He acknowledged that his plan to increase the sales tax from 5 percent to 6 percent would hurt the finances of all Marylanders, but O'Malley said his plan to cut the property tax by 3 cents per $100 in assessed value and to shift the income tax burden from low- and middle-income families to top earners would result in a tax cut for most people.

O'Malley acknowledged last week that after the Senate amended his plan, that goal might not be realized.

"Not under what the Senate has done so far," O'Malley last week.

O'Malley said he is willing to compromise in the short term, figuring that he will have other opportunities to remake the tax code to help the poor and the middle class, especially if voters approve slot machines that generate new revenue for the state.

"We are not done simply at the end of this special session," he said.

Both the Senate and the House eliminated the property tax cut. The House added some new tax breaks for lower-income workers, but the benefits wouldn't necessarily be as big as the governor proposed. And a $50 sales tax rebate for families earning less than $30,000 a year that was in O'Malley's plan appears to be dead.

For a family earning $40,000 a year, O'Malley's plan would result in tax savings of $58. That family would pay $7 more a year under the House plan and $87 more a year under the Senate plan.

A family earning $75,000 a year would pay an extra $66 under O'Malley's plan, not counting the property tax cut that he was pushing. If that family owned a $220,000 home, it would break even under his proposal. That family would pay an extra $83 under the House plan and $166 more under the Senate plan.

The very wealthy - families with incomes of $750,000 a year - would be hit the hardest by O'Malley's plan. The governor's proposal (not counting the property tax break) would have cost them about $5,403. The House and Senate plans would add $4,405 and $2,253, respectively.

A big impetus for the changes to O'Malley's plan was the objection of Montgomery County lawmakers, whose constituents would have picked up most of the tab.

Montgomery County Executive Isiah Leggett, a Democrat, said he worried that O'Malley's plan would prompt top earners to relocate to Northern Virginia, where the income tax rate is lower.

"It would harm our efforts to preserve and protect our low-income families because we need revenue from the top," Leggett said. "If we do not continue to attract these people, it adversely affects those at the bottom."

Some key protections for low-income workers remain in the package, most notably an expansion of the state's earned income tax credit, which provides refunds to workers who earn too little to pay state income taxes.

An increase in the exemption allowed for the blind and the elderly remains in the House and Senate packages, and the Senate approved a small increase in the personal exemption that all taxpayers can claim. The House also increased personal exemptions from $2,400 to $3,200 for low- and middle-income families.

Advocates for the poor say the expansion of the Earned Income Credit is the most important element of the package. The maximum benefit for the combined state and federal credit is $5,659, but the change that O'Malley proposed would increase that by about $235.

Teffany Horne, 41, of Baltimore, a job coach for autistic young adults who takes care of her two children plus a niece and nephew, has been claiming the tax credit since 1999. Her oldest son has cerebral palsy, and she has been able to use the tax credit to repair his wheelchair, add a ramp to her apartment and make other changes to help him get around.

She said expanding the credit would be a great help, especially if the sales tax is raised.

"I do have to shop for all four [children], so I don't see how it will help us, raising that," Horne said. "But maybe that [EIC] increase will help make up for what they're taking."

andy.green@baltsun.com

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