Tax compromise may be reached today Lawmakers hold discussions at urging of Governor Schaefer.

April 02, 1992|By John W. Frece | John W. Frece,Annapolis Bureau

ANNAPOLIS -- Gov. William Donald Schaefer nudged stubborn House and Senate tax conferees into a face-to-face meeting last night, raising the hope that the legislature's budget and tax deadlock might be broken before Monday's scheduled midnight adjournment.

The conferees settled nothing during their 90-minute discussion, but seemed on the verge of a compromise that could be completed when they meet again today.

The biggest sticking point, it appeared, was whether a new 6 percent income tax bracket for the wealthy, proposed by the House, should be permanent or, as the Senate suggested, should expire after two or three years.

As an alternative, the Senate proposed a temporary income tax surcharge on all taxpayers, with a 1 percent surcharge on taxable incomes below $50,000 and a 3 percent surcharge for taxable incomes above that.

"In two years, when the recession is over, we may not need this money [from higher taxes]," argued Sen. John A. Cade, R-Anne Arundel.

The meeting itself was a step forward on a day when neither side seemed eager to deal. The lawmakers convened only after the two sides met privately in Mr. Schaefer's State House office, the last of a series of meetings the governor held with senators and delegates throughout the day.

"Everybody got a little bit off their chests [at that meeting]," Mr. Schaefer said afterward. "The more they talked at me, the more they thought they'd like to try it themselves. I had a report they made progress tonight, and that's good."

The politically explosive tax issue has kept the two houses from reaching final agreement on the state budget for next year, which in turn has threatened to force an extension of the 90-day session past Monday's scheduled adjournment until a spending plan is adopted.

Both houses have anticipated a tax increase to balance the fiscal 1993 budget and to cover the deficit remaining in the current fiscal year. Without higher taxes, spending on a broad list of government programs could be cut drastically -- a scenario that backers of the tax package have called a "doomsday" budget.

But House leaders warned that if their tax plan is changed, they may lose the slim majority they pulled together to pass it in the first place.

Senate leaders countered with their own warning, saying that if the House tax plan is not changed, there is no way they can gather a majority for it.

When the conferees finally met last night, they made these points:

* Senators said they might go along with a House proposal for a "gas guzzler" titling tax that penalizes purchasers of vehicles that use a lot of gas but offers tax credits to those who buy fuel-efficient cars.

But the senators said they wanted to see compromises in other areas of the House tax package before endorsing the "gas guzzler" concept. The conferees did not even mention the House's proposed nickel-a-gallon increase in the gasoline tax. The gasoline tax increase, designed to restart the state's road-building program, appears acceptable to a majority of both houses.

* The senators also said they could endorse a House proposal to raise the state's corporate income tax rate, but proposed a single increase rather than the two-tiered approach proposed by the House. The House bill would raise the 7 percent rate to 7.5 percent for companies with profits of $1 million or less and to 8 percent for those with profits above $1 million.

* The senators told their House counterparts that they might be able to push through a proposal to give Baltimore and the 23 counties authority to raise their maximum piggyback income tax rate from 50 percent to 60 percent to offset huge cuts in state aid.

But they said there was no way they could push through a companion proposal to grant local jurisdictions additional authority to raise a broad array of other local taxes on utilities, movie rentals, hotels, gaming events and other activities.

"There are just some senators who are very jealous of their local prerogatives," explained Sen. Barbara A. Hoffman, D-Baltimore.

* The delegates, under criticism from the Senate for talking about the need to expand the taxable base for the state's 5 percent sales tax but then failing to do so, proposed expanding the tax to cover the cost of residential and commercial security services.

The tax conferees have previously agreed to raise the tax on cigarettes by 20 cents a pack to 36 cents.

It appeared for most of the day that no progress on the budget and tax issues would be made, leading to broad speculation about the impact of an extended legislative session.

Such an embarrassing ending would imperil the state's $330 million capital construction budget, and possibly cost the state its triple-A bond rating, lawmakers predicted.

Leaders in both houses spent most of the day pointing fingers at their counterparts across the hall, blaming them for "inflexibility," for refusing to compromise, and for wanting to dictate how the final budget and tax package should be shaped.

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