Gov. Martin O'Malley threw his support behind a growing effort to repeal a $200 million tax on computer services and suggested yesterday that Maryland's wealthiest residents ought to help make up the difference with a surcharge on their personal income taxes.
The governor, a Democrat, said it was unfair to expand the sales tax to just one industry and echoed the sentiments of many lawmakers who believe the application of the levy was not thoroughly vetted when it was approved in November.
"I've never been a big fan of this computer tax," O'Malley told reporters after an appearance in Dundalk.
Technology tax opponents rejoiced at the news, but O'Malley's comments were met with mixed emotions by tax-weary legislative leaders, who are worried about reviving the same legislative battle that briefly threw last year's special session into disarray.
Senate President Thomas V. Mike Miller, a Democrat, chided the governor for trying to "move too fast" so close to the session's close and suggested that O'Malley and the Democratic Party could take a political hit if new taxes were back on the table.
"Sometimes, big city mayors, when they go to be governors, they move too fast and as a consequence they're no longer in office," Miller said.
In an e-mail response, O'Malley said he has been forced to move quickly because of the pressing problems facing the state.
"Whether it's the energy deregulation mess or the structural deficit mess that was 10 years in the making, this administration is serving at a time when there are no easy or popular ways to address a number of problems," O'Malley said.
"Given these challenges that have been neglected for years, all of us need to stay focused on solutions that serve the best interests of Maryland's families, rather than worrying about the next election."
Miller indicated he would not actively oppose O'Malley's plan, but said he still prefers an amended tech tax to an income tax increase.
House Speaker Michael E. Busch said he would back a repeal of the computer tax but stopped short of endorsing O'Malley's preference for a tax increase on the wealthy.
Both Miller and Busch said any new taxes would be tough to push through Annapolis this year, even if they were linked to repealing another tax.
O'Malley's public comments came two days after a private meeting with Democratic leaders in which he indicated his desire to replace the technology tax with a combination of budget cuts and income tax increases.
That discussion produced "no consensus ... of any kind" on how to come up with the money to repeal the computer tax, said Del. Kumar P. Barve, the majority leader from Montgomery County who attended the meeting.
Yesterday, the governor, who has long favored a more progressive income tax, said lawmakers should consider creating a higher income tax bracket for individuals earning more than $750,000 a year.
O'Malley pushed for new top-tier income tax brackets during November's special legislative session, but his plans were watered down after objections from Montgomery County lawmakers.
Montgomery is the state's wealthiest county and a hotbed of opposition to the information technology tax.
Several Montgomery County legislators said they would oppose increased income taxes on the rich because they would disproportionately affect their constituents. Del. Luiz R.S. Simmons, a Democrat, said his county's 32-member delegation is tired of being the "whipping boy" for Maryland's revenue-starved government.
Still, an income tax increase on the rich has gained traction in recent days after Sen. Verna L. Jones, a Baltimore Democrat, introduced a bill to place a temporary surcharge on high-income Marylanders. Sen. Ulysses Currie of Prince George's County, who chairs the powerful Budget and Taxation Committee, said he would support it.
Del. Christopher B. Shank, a Western Maryland Republican and the minority whip, called the high-earners' tax "even more pernicious" than the technology tax, and said it would have no support from the GOP.
"If you were to impose this income tax on high-earners, you will chase people out of state ... just like the tech tax is about to chase entrepreneurs out of state," Shank said.
Jones' bill would create two new income tax brackets for the state's highest earners: a 6.5 percent bracket for income of more than $1 million and a 6 percent bracket for income between $750,000 and $1 million. Currently, all income of more than $500,000 is taxed at 5.5 percent.
The governor did not elaborate yesterday on budget cuts he might favor, but administration sources said yesterday that among the possible trims are 1 percent or 2 percent across-the-board cuts to all state agencies and a government-wide hiring freeze.
Associations and advocates representing the high-tech industry said they were thrilled by O'Malley's apparent about-face yesterday.
Just weeks ago, he told an angry group of computer industry executives that he did not support a repeal of the technology tax.
"We are very appreciative of the governor's leadership on this issue," said Julie Coons, CEO of the Tech Council of Maryland. "Clearly, the voices of average businessmen and -women in the computer services industry has made an impact."
But Miller was decidedly lukewarm on O'Malley's high-earner levy, noting there could be intense opposition to it from Montgomery and other wealthy counties.
"He's certainly entitled to his opinion, and we'll wait to see if a consensus develops in the House and Senate committees," Miller said. "I will not actively oppose it."
Busch, leader of the House of Delegates, said the computer services tax was born in the Senate, so it's up to senators to provide an alternative revenue source.
If the Senate passes an income tax increase, "the House will respond," Busch said, "quite possibly" endorsing the "millionaires' tax."
The tax is set to take effect in July. Comptroller Peter Franchot, a technology tax opponent, said his office is set to release draft regulations for the levy's implementation today.
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