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Maryland Democrats plan $700M tax package to begin funding school changes after demise of large sales tax bill

After lawmakers defeated a proposal to greatly expand the state’s sales tax, top Maryland Democrats say they are moving forward with an alternative plan: Cobble together revenue from nine tax bills to bring in more than $700 million annually for schools.

That plan won’t fully fund the state’s share of education reforms recommended by the Kirwan Commission, such as expanded prekindergarten, increased teacher pay and more vocational training. But it would cover the state’s portion of paying for the plans through fiscal year 2026, according to projections.

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“We should have seven years of Kirwan fully funded as result of the actions we took last night,” House Majority Leader Del. Eric Luedtke, the Montgomery County Democrat who sponsored the sales tax expansion bill, said Thursday. A subcommittee of the Ways and Means committee endorsed the tax package Wednesday, subject to amendments.

The revenue package under consideration in the House of Delegates includes: A tax on digital downloads of things like music, books and movies (estimated to raise $147 million annually by 2025); cracking down multistate corporations’ methods to reduce taxes ($139 million); increasing the tobacco tax ($79 million); legalizing sports betting ($30 million) and taxing luxury services ($20 million), among other pieces of legislation. If the House bills are combined with a Senate proposal to tax digital advertising ― estimated to raise $250 million annually ― the package would generate $737 million by 2025, according to projections from the Department of Legislative Services.

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Benjamin Orr, the director of the Maryland Center on Economic Policy, said he was pleased to hear the Ways and Means subcommittee was moving forward on the package of bills.

“This is the right approach at the right time,” Orr said. “We need to identify revenue to pay for Kirwan now so it’s sustainable over the long term. This is a smart and thoughtful decision.”

But Mike Ricci, spokesman for Republican Gov. Larry Hogan, criticized the package.

”After promising to fully fund Kirwan, lawmakers are years late and still billions short," he said. “Now, they plan to force through all of the spending, some of the taxes, and none of the accountability."

Business groups and Hogan had campaigned against the sales tax bill, which would have raised $2.9 billion annually to pay for public schools. Hogan’s Change Maryland political fund ran ads against the bill.

It was voted down unanimously late Wednesday by the Ways and Means subcommittee.

Mike O’Halloran, state director of the National Federation of Independent Business, said Thursday that Maryland’s tax burden is one of the worst of any state in the country.

“The General Assembly needs to focus on fixing that,” O’Halloran said. “The business community is united on these very important tax issues.”

Maryland Democrats are searching for revenue streams to pay for the sweeping overhaul of public education proposed by the Kirwan Commission. The House is scheduled to vote Friday on the Kirwan bill.

The commission, named for its chairman, William “Brit” Kirwan, spent three years studying how to improve the state’s public schools. The dozens of programs it recommends would be phased in over 10 years, and by 2030 would cost an estimated $4 billion more per year than current spending on schools. That would be split between the state government and local governments.

One of the tax proposals would address what’s known as “combined reporting.” That’s when multistate corporations move some of their profits on paper to subsidiaries in other states to avoid paying Maryland taxes. The Maryland Fair Funding Coalition hopes the change would eliminate the practice.

“We’re very happy to see these moving forward,” Kali Schumitz, a spokeswoman for the coalition, said of the package of bills now under consideration. “These are corporate loopholes that have been allowing corporations to lower their tax responsibility for years.”

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Groups pushing for the tobacco tax increase due to health concerns welcomed the inclusion of their proposal in the Democrats’ agenda, but argued the state should go further. They’re hoping lawmakers will charge the same tax rate on all vaping systems. Under the bills moving forward, refillable vaping systems would be taxed at a lower rate than cartridge-based and disposable vaping systems.

“They’re looking at a lot of ways to fund Kirwan and they’re leaving money on the table,” said Laura Hale, Maryland government relations director for the American Heart Association.

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