Deal may end 'tech tax'

The Baltimore Sun

Gov. Martin O'Malley and top leaders in the General Assembly are lining up votes for a plan to replace Maryland's new computer services tax with an income tax surcharge on top earners and cuts to transportation and other spending.

The plan has the backing of Senate President Thomas V. Mike Miller and Sen. Ulysses Currie, the Prince George's County Democrat who chairs the powerful Budget and Taxation Committee.

"I feel fairly certain we'll be able to get it out" of committee, Currie said yesterday. "Eighty to 90 percent of the legislature feels we have to repeal the computer tax."

The so-called "tech tax" was approved in November's special legislative session; business groups have called for its repeal almost from the moment it passed, saying it will destroy a growing part of Maryland's economy.

O'Malley, a Democrat, discussed ways to repeal the $200 million levy in a closed-door meeting with legislative leaders Tuesday night. The consensus that emerged was to try to raise $100 million by creating a new income tax bracket of 6.25 percent for people earning more than $1 million, according to those who attended the meeting.

An additional $50 million would come from the state's $400 million Transportation Trust Fund, and the rest from additional budget cuts.

Montgomery County Executive Isiah Leggett, whose objection to tax hikes on top earners galvanized opposition from his county's lawmakers during November's special legislative session, indicated yesterday that he was open to higher income taxes as part of a comprehensive package.

If a high-earner's income tax hike is "a piece of the overall package, that might work," Leggett said yesterday.

O'Malley's proposal still faces tough opposition from the Montgomery County delegation, the state's largest voting bloc.

Montgomery is also the wealthiest county and a hotbed of opposition to the information technology tax, which goes into effect July 1. Some Montgomery County senators have said in recent days that they would support an income tax surcharge if it were the only way to repeal the tax, but others have said a millionaires' tax would disproportionately affect their constituents.

"I would not support it," Sen. Rona Kramer, a Montgomery County Democrat on the budget committee, said yesterday.

O'Malley's proposal is a political mistake, she said.

"He's coming to the one jurisdiction where he's still popular and saying: 'We're going to make you compromise again,'" Kramer said. "It's going to make him look terrible."

O'Malley spokesman Rick Abbruzzese defended the plan yesterday.

"The computer services tax will negatively impact thousands of small businesses and families throughout Montgomery County and our state," Abbruzzese said. "Aside from helping to craft the computer tax in the first place, Senator Kramer has offered no alternative solutions."

The Department of Legislative services has estimated that the millionaire levy would impact 0.2 percent of tax filers, or about 6,000 people, legislative staffers said.

Sen. Bobby Zirkin, a Baltimore County Democrat on the committee, also said yesterday he would oppose any new tax increases, even if they would allow the repeal of the tech tax. He said he would be willing to delay transportation projects in his district to avoid new taxes if necessary.

Miller said the Senate would take up the measure Monday, but he placed the responsibility for rallying votes with the governor.

He predicted a close vote. He said it was possible that the final plan would leave the transportation trust fund untouched and make up the difference with more cuts to other programs.

"No tax is a good tax in the eyes of the public," he said. "I'd personally prefer a little more on the cutting side rather than taking money from transportation. We're fast becoming in gridlock" in Baltimore and the Washington suburbs, he said, "and I hate to give it up so easy."

House Speaker Michael E. Busch said yesterday that he preferred raising taxes on the rich over cutting the budget further but acknowledged that the General Assembly was "weary" of raising new revenues after passing $1.3 billion in taxes in November.

O'Malley's popularity ratings have fallen since the November special session, but Busch said he believed the governor retained the political capital to shepherd the legislature toward difficult decisions.

"The governor's numbers are not the best, but he's still willing to take the lead," Busch said.

Republicans immediately criticized the proposal.

"We have offered plan after plan that would fund all of it with reductions in spending," said Del. Anthony J. O'Donnell, the House minority leader. "We're not going to get into the game of shifting tax burdens around."

Transportation Secretary John D. Porcari declined to comment on what effect a $50 million reduction in the transportation fund would have on the state's plans to reduce congestion.

"As they say in television, stay tuned," Porcari said. "We will have to take a close look at our capital program and proceed from there."

Using transportation money to make up for state shortfalls could also become a hot-button political topic, since many Democrats faulted former Gov. Robert L. Ehrlich Jr. for balancing the budget with those funds.

Lawmakers voted to use half of the 1 percent sales tax increase for transportation funding. This proposal would decrease that amount and put more of the revenue into the general fund for the next five years.

If the high-earner's tax gains traction, Miller said, he would push for a five-year sunset. He said the General Assembly imposed a similar levy during the last fiscal crisis in 1990 and allowed it to expire after three years.

gadi.dechter@baltsun.com brad.olson@baltsun.com

Sun reporter Laura Smitherman contributed to this article.

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