Schaefer: $700 million tax rise 'Don't be afraid to step out,' governor sqays Scope stuns tax-skittish Assembly

January 10, 1992|By John Frece | John Frece,Annapolis Bureau of The Sun C. Fraser Smith and Laura Lippman of The Sun's Annapolis Bureau contributed to this article.

ANNAPOLIS -- Gov. William Donald Schaefer offered his solution to Maryland's chronic money problems yesterday -- another half-billion dollars in budget cuts and a sweeping, $700 million increase in state taxes and fees.

Mr. Schaefer's program would make it more expensive to drive a car, buy a six-pack of beer or a bottle of wine, smoke a cigarette, repair a car, dry-clean a suit or get a haircut.

Most of the new money is needed, Mr. Schaefer said, to help erase a projected $1.2 billion deficit in fiscal 1993.

The rest, embodied in a nickel-a-gallon increase in the state's gasoline tax, would be used to refuel a stalled highway construction program. It also would give Maryland one of the highest gas taxes in the nation.

"Don't be afraid of new directions," the governor told the tax-skittish lawmakers. "Don't be afraid to step out and make a tough decision."

Mr. Schaefer said he plans to absorb $500 million of the deficit by cutting spending in the fiscal 1993 budget he will submit to the legislature at month's end.

But he said the remaining $700 million gap could be closed only through higher taxes and a relaxation of legally mandated local aid programs.

"We only funded the basics, and we're still $700 million short," he said in a crisply delivered, 38-minute speech from the rostrum of the House of Delegates. "That's not a made-up number: We're $700 million short.

"Without a solution, we're faced with eliminating whole agencies, bankrupting local government, [and] hurting the most vulnerable people," he said.

The governor said he opposed increasing the state's 5 percent sales tax rate because it would disproportionately hurt the poor.

But he called for broad expansion of what is currently taxed and repeal of existing sales tax exemptions, saying: "Special interests must step aside."

While his serious but positive tone drew a favorable response, his broad array of tax initiatives sparked a broad array of reactions.

"Abject horror," responded House Minority Leader Ellen R. Sauerbrey, R-Baltimore County. She called the plan "Linowes with icing," a reference to the failed recommendations last year of Mr. Schaefer's tax restructuring commission, headed by Montgomery County lawyer R. Robert Linowes.

She said government can and should live with the revenue it has, and she characterized Mr. Schaefer's plan as "a one-sided approach."

Some lawmakers seemed stunned by the breadth of the governor's tax package.

Among them was House Speaker R. Clayton Mitchell Jr., D-Kent, who said he was caught off guard despite recent private talks with the governor.

As he has previously, Mr. Mitchell said he wanted to see if spending can be reduced before he even considers tax increases.

Del. Robert Ehrlich Jr., R-Baltimore County, said he disagreed with most of the governor's proposals but called the plan "a good political approach."

"You throw an awful lot on the wall and see what sticks," he said.

Sen. Laurence Levitan, the Budget and Taxation Committee chairman, said his own broad tax increase plan looked modest compared to Mr. Schaefer's.

The Montgomery County Democrat said he would prefer an increase in the sales tax rate, as well as an expansion of the base. That, he said, could be more helpful in eliminating a residual $225 million deficit in this year's budget.

To get next year's budget in balance, Mr. Schaefer called for changes in the laws that require the state to send to Baltimore and the 23 counties $240 million in aid through property tax grants, shared alcohol tax revenues and subsidies for "resident state trooper" programs in rural counties.

But he said he would not touch the biggest state aid program of all -- aid for public schools -- or the $184.4 million increase in so-called APEX education funding scheduled for 1993.

In exchange for cutting other local aid programs, the governor said he wants to let subdivisions raise their maximum piggyback income tax rates from 50 percent to 60 percent of state income tax. He also proposed redistributing 5 percent of the first 50 percent to jurisdictions where the money is earned, rather than to where the taxpayer lives.

That change in basic tax policy is designed to help financially strapped Baltimore, and it immediately created controversy.

Senate President Thomas V. Mike Miller Jr., D-Prince George's, derisively referred to it as "a commuter tax" and said he was opposed.

"Apparently the people on the governor's staff don't understand the geography of the state of Maryland," he said, referring to his belief that if Maryland adopts a commuter tax for the Baltimore area, Congress may allow Washington, D.C., to enact a similar tax on city workers who live in the neighboring Maryland and Virginia suburbs.

Del. Elijah E. Cummings, D-Baltimore, said he, too, was concerned that the place-of-earnings tax would aggravate and alienate his legislative colleagues from neighboring Baltimore County.

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