'T' word rumblings get louder More legislators discussing "revenue enhancements."

October 28, 1991|By Marina Sarris | Marina Sarris,Evening Sun Staff

They may be quiet, but their numbers are growing.

After a year dominated by the spirit of no new taxes and $1 billion worth of budget cuts, a number of state legislators are talking -- tentatively -- about something called "revenue enhancements."

That means raising state taxes next year, allowing local governments to collect more taxes, or both.

Even if the state manages its budget problems by cutting deeper rather than by raising taxes, some lawmakers say it's time to make Maryland's system of income, business, property and sales taxes more fair.

If they must raise revenue, lawmakers should consider increasing sales and business taxes and licensing fees, rather than income taxes, according to a legislative report that will be presented tomorrow.

The draft report and recommendations of the Joint Study Group on Revenues, which consists of state senators and delegates from fiscal committees, outlines potential tax reforms and increases.

Study group members want to re-examine a 1990 law that allowed local governments to put a cap of 10 percent on increases in property tax assessments, a legislative analyst said.

Critics now say the 1990 law encourages counties to shift the tax burden to the state and possibly to their lower-income residents.

The state also should reconsider where it puts money such as corporate income tax revenues, which end up in the fund for transportation projects, according to the group's draft recommendations.

In addition, some study group members say they expect to consider a gasoline tax increase when the General Assembly convenes in January.

"If you want to live in the real world and you want to bet, you would bet that there will be some revenue enhancement," said Del. Tyras S. Athey, D-Anne Arundel, chairman of the House Ways and Means Committee and a study group member.

Athey, however, said he does not favor a tax increase now and will not support one until he sees drastic changes in Maryland's spending habits. "We can't continue moving in this tax-and-spend direction," he said.

Legislators began studying the state's spending and tax policies last summer, after they killed Gov. William Donald Schaefer's tax plan.

Their concern about Maryland's long-term financial health has been heightened by $450 million in budget cuts this fall, the possibility of another multimillion-dollar shortfall this winter and a projected $700 million shortfall next year.

The group's draft report, prepared by legislative analysts, notes that Maryland relies more heavily on income taxes than many other states, but less on property and sales taxes.

Generally, income taxes are considered to be more fair than the other two taxes because they are based upon a person's ability to pay. With sales and property taxes, all residents pay the same rate regardless of their personal wealth.

In the late 1980s, the state reduced personal income tax rates for lower-income families. Now the study group is recommending that the legislature consider raising the share of the tax burden paid by higher-income Marylanders.

Legislators also are looking at whether to give the counties and Baltimore more power to raise local income taxes and other fees.

The income tax issue, however, may be a thorny one because many legislators want to avoid any tax increase that hits the middle class.

More likely, according to some legislators, is an increase in the 5 percent sales tax or in the number of goods and services subject to the tax.

"There's no doubt in my mind that the sales tax is going to be increased a penny and the base broadened," said Sen. Laurence Levitan, D-Montgomery, who chairs the Budget and Taxation Committee.

Levitan apparently has picked up some followers since last month, when he pronounced himself a general without an army in the fight for a higher sales tax.

Study group members also are recommending a review of a 1990 law designed to protect homeowners from sudden, sharp increases in property assessments.

The law gave local governments the power to cap assessment increases at 10 percent. Baltimore, Harford and Howard counties and Baltimore City have adopted lower caps, which restrict growth in their property tax revenues.

Those areas may feel pressure to increase their property tax rates in order to make up for the money lost from the cap, the report warns.

That means people whose homes have not appreciated markedly would pay higher taxes to subsidize savings to residents of more affluent neighborhoods whose property values have shot up.

"On the average, it will benefit people in higher incomes more than people in lower incomes because people in higher incomes are more likely to live in property that's appreciating rapidly," one budget analyst said.

Business taxes also will find themselves under the magnifying glass, although legislators appear reluctant to do anything that would discourage economic development.

Neighboring states receive a higher percentage of their total tax revenues from business taxes than Maryland does, according to the report. Maryland should consider raising businesses' share of taxes only after taking into account the economic development climate, it stated.

"I, for one, am very reluctant to accept the notion that the business community is somewhere we can find a lot of free money," said Senate Finance Committee chairman Thomas P. O'Reilly, D-Prince George's.

The report also concludes that taxpayers should not subsidize the cost of regulating and licensing industries that can afford to pay for it themselves. As a result, the draft says, the legislature should consider raising business license fees.

The study group also recommended consideration of higher taxes on polluting industries to help recoup the rising cost of enforcing federal and state environmental regulations.

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