The death knell for the Schaefer administration plan to raise $800 million annually by restructuring state taxes could come this Friday when legislative analysts unveil a report criticizing the plan as harsh on low- and middle-income taxpayers.
Even Lt. Gov. Melvin A. Steinberg, the governor's chief liaison with the legislature, agreed yesterday that the so-called Linowes proposal is likely to see summer study by lawmakers.
"Bills that are this complex and complicated need a period of gestation," Steinberg said.
One State House source said a report by the legislature's Department of Fiscal Services would give ammunition to opponents who are lobbying to kill the bill or send it to summer study. The report is to be delivered Friday to a joint hearing of House and Senate committees.
In general, the theory behind Gov. William Donald Schaefer's tax plan is that wealthier Marylanders -- those earning $40,000 and more a year -- would pay more in income taxes while those who make less would receive income tax breaks.
The plan also would increase the sales tax from 5 to 5 1/2 percent and expand it to include cigarettes and various services that now are exempt. A new 2 percent personal property tax also would be imposed on owners of boats and automobiles.
But the report by the legislature's budget analysts strongly suggests that Schaefer's plan would hit most taxpayers hard, even with the proposed income tax restructuring.
"Clearly, some proposals make the tax system more progressive, such as the income tax proposals," wrote William S. Ratchford 2nd, director of the Department of Fiscal Services, in a letter accompanying the report sent to House and Senate leaders yesterday.
"Others are more regressive, such as the sales tax increase," he continued. "And others are combinations of the two, but in some instances appear to fall fairly heavily on low- and middle-income taxpayers, such as many of the services selected for inclusion in the sales tax base and the property tax on vehicles."
Ratchford analyzed how the proposed tax changes would affect hypothetical families in various income brackets and came up with greater tax increases than those found by the gubernatorial commission that drafted the bill. The Linowes Commission and Ratchford apparently used different assumptions about the value of peoples' cars and boats and about how much people spend on services that would become subject to the sales tax.
R. Robert Linowes, the Montgomery County lawyer who headed the gubernatorial commission that recommended the tax plan, said yesterday he hoped lawmakers would not reject the plan outright.
"I believe there may be something to the view that some parts of the proposals should be studied," he said, mentioning specifically the 2 percent tax on the value of cars and boats.
But, he continued, "much of the package is self-explanatory" and does not need to be reviewed over the summer.
"We attempted to do what was right," he said. "And now it's up to the legislature. If they think there are other ways in which [tax restructuring] can be done, let them now decide what direction to go."
Many legislators remain unconvinced that Maryland needs to increase tax revenues by $800 million a year. Legislative leaders are talking about less sweeping tax changes, such as repealing various sales tax exemptions or imposing a one-time income tax surcharge.
"We don't need $800 million right now," said Sen. Barbara Hoffman, D-City, who had been among the first to embrace the Linowes plan, at least in theory.
Hoffman is one of several city lawmakers who have introduced tax bills of their own in an effort to help cash-poor Baltimore. She acknowledged that the Schaefer tax package has virtually no chance of passage this year.
But, she added, it has generated open talk about the need for some new taxes.