A reduction in the capital gains tax would give families more money to spend on basic needs and, thus, help the state's economy to grow, supporters of the proposed tax cut told the Maryland Senate Budget and Taxation Committee yesterday.
The bill, proposed by Sen. Larry E. Haines of Westminster, would cut the tax in half for the first $50,000 in capital gains annually for individuals and corporations.
Taxpayers earning more than $50,000 a year in capital gains would pay the full tax on gains above that amount.
"This is not money that will be sitting around in the bank," said Senator Haines, a Republican. "This money will be used for education, food and clothing. The lower and middle classes will be benefited as much as the upper classes with the jobs that will be created."
Senator Haines said that 68 percent of Americans who pay capital gains taxes nationwide earn $50,000 a year or less.
"Studies have shown that such cuts generate enough revenue [from other spending] to more than pay for the cut," he said. "This will make Maryland more competitive with other states and foster economic growth."
Gene Burner, of the Maryland Chamber of Commerce, and Sen. John A. Cade, a Anne Arundel County Republican, also spoke in support of the bill.
"The greatest mistake Congress ever made was the so-called Tax Reform Act of 1986," Senator Cade told the committee. "It effectively provided disincentives for investments in real estate, real property and related items. If you trace it back, the 1991 recession is due to that [act]."
Supporters also noted that a similar proposal has been submitted in Congress which, if it's enacted, would automatically affect Maryland. But the General Assembly should pass the Haines bill anyway, they said.
"If something is done on the federal level, that's great," Senator Haines said. "But I'd not like to see this bill be contingent on that."
In the fiscal note provided to the senators, state Department of Fiscal Services analysts said the provisions of the Haines bill would cost Maryland about $55.5 million in general fund revenue during fiscal year 1996 and $38.1 million in fiscal year 1997.
During those same years, several state special funds that depend on corporate income tax revenues would lose $123,300 in fiscal 1996 and $162,200 in fiscal 1997, analysts said.
In contrast, a similar bill submitted by Senator Haines last year -- which would have reduced all personal and corporate capital gains taxes by 50 percent -- would have cost Maryland $63.5 million in general fund revenues and $4.4 million in money to the Transportation Trust Fund.
The bill was killed by the Budget and Taxation Committee.
In a related area, Sen. Timothy R. Ferguson of Taylorsville yesterday withdrew his bill to eliminated the capital gains tax.
That bill had been co-sponsored by Sen. Richard Colburn, who represents four Eastern Shore counties, and Sen. Jean W. Roesser of Montgomery County. All three legislators are Republicans who are new to the Senate this year.
"The bill was [dead on arrival] anyway," Senator Ferguson said, noting that a proposal he submitted exempting certain organizations from paying taxes on soft drinks already has been killed by the committee.
The committee also is considering several "Republican contract" bills submitted by the minority leadership that deal with reducing personal taxes, he said.
"It's more important that the battle stay focused on personal taxes and away from business taxes this year," Senator Ferguson said.