Divided delegates OK tax increases to avoid more cuts

March 10, 1991|By John W. Frece | John W. Frece,Annapolis Bureau of The Sun

ANNAPOLIS -- Divided along party lines, and with the have and have-not jurisdictions of the state at odds, anguished members of the House of Delegates voted yesterday to raise taxes to avoid further cuts in the coming year's $11.6 billion state budget.

The Democratic-controlled House, fending off a Republican attack, voted 91-40 to eliminate Maryland's 40 percent tax break on capital gains. The measure, however, still would permit taxpayers who earn $50,000 a year or less and file individually, and those who earn $100,000 or less and file jointly, to shelter 20 percent of their capital gains.

Democratic leaders contended that the change would primarily affect the rich, the 10,000 Maryland taxpayers who earn $200,000 or more year. But Republicans argued that it would hit the middle class as well as the wealthy, robbing the economy of capital needed to fuel a recovery.

Also approved, 106-26, without debate, was separate legislation that will apply the state's 5 percent sales tax to cigarettes.

The two tax bills and the $11.6 million spending plan for the year beginning July 1 were sent to the Senate, where broad changes in the package are expected.

House leaders had leveraged support for the twin tax package by threatening to cut $74 million from local aid programs -- for public schools, fire and police protection, and property tax relief -- if the tax plan failed.

"It is my responsibility for those two taxes," House Speaker R. Clayton Mitchell Jr., D-Kent, told the House after yesterday's vote.

Mr. Mitchell, who had vowed "no new taxes" this session, said he was forced to change his mind because of the deepening recession and economic aftershocks of the Persian Gulf war.

As a result, he personally appealed to the Ways and Means Committee to let the full House choose between additional budget cuts and raising taxes.

The nation's economic slump, and resulting decline in state tax revenue, forced legislators to cut $192 million from Gov. William Donald Schaefer's already lean Fiscal Year 1992 budget.

The legislature also was forced three times to reduce spending or transfer money to cover a shortfall of more than a half billion dollars in the current budget year.

To make it all work -- and to meet the state's constitutional requirement for a balanced budget -- the governor and legislative leaders tapped virtually every available pool of money, including the Ocean City beach replenishment, penalties from uninsured motorists, housing funds, and unclaimed lottery prizes.

They transferred to the treasury $100 million from the state's emergency "Rainy Day Fund," $68 million from parkland acquisition and farmland preservation funds, and about $126 million from nearly two dozen other funds.

Meanwhile, 541 mostly vacant jobs were eliminated and most budgeted programs were cut to levels that take many of them back to funding levels of Fiscal Year 1990 or before.

"We were forced to halt progressive trends," admitted Appropriations Committee Chairman Charles J. Ryan Jr., D-Prince George's, who said the only increases in next year's budget are for public schools, welfare and medical care for the poor.

Overall, he said, appropriations in the coming year's budget amount to an increase of seven-tenths of 1 percent over this year's appropriation. In normal years, it ranges between 6 percent and 8 percent.

"We've never recommended reductions like this before," he said.

Still, it was not enough for some legislators, particularly the Republican minority, which tried Thursday to force even deeper cuts to avoid a tax increase. The attempts, none of which elicited more than 18 votes in the 141-member House, were criticized as "grandstanding" by some Democrats.

Yesterday, it was the GOP again that waged the sharpest attack on the change in the capital gains tax. Twenty-three of the House's 25 Republicans were among the 40 delegates who opposed it.

It is "real easy" to tax capital gains, Minority Leader Ellen R. Sauerbrey, R-Baltimore County, said sarcastically, "if you don't want people to save, if you don't want them to buy a house, if you don't want them to invest in business, if you don't want them take a risk and start a business."

But Delegate James C. Rosapepe, D-Prince George's, floor leader for the tax bills, said the change would eliminate a tax loophole for the rich. Using charts and bar graphs projected on a huge screen on the House floor, Mr. Rosapepe said taxpayers earning over $200,000 managed to shelter $1.3 billion in capital gains earnings, or about half the state's total.

The fight over capital gains -- what Minority Whip Robert H. Kittleman, R-Howard, called an attempt to encourage "class warfare" -- prompted bitter finger-pointing between Montgomery County and Baltimore delegates over which of their jurisdictions stands to gain the most under the new budget.

For the first time in his two decades in Annapolis, Delegate Paul E. Weisengoff, D-Baltimore, voted against the budget to protest what he described as ill treatment for Baltimore.

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