Md. tax relief moves forward House OKs 7% cut

Senate leaders give support to effort

March 18, 1997|By Thomas W. Waldron | Thomas W. Waldron,SUN STAFF

The effort to reduce state income taxes picked up momentum in the State House last night as the House of Delegates gave final approval to a 7 percent cut and Senate leaders announced their support for tax relief.

By a 131-7 vote, the House passed a bill that would trim the state's income tax rate from 5 percent to 4.8 percent over two years and create a tax credit of as much as $350 per child for low- and moderate-income families.

"This is truly a moment a lot of us have been waiting for," Del. John Adams Hurson, a Montgomery Democrat, said of the vote on the No. 1 issue of the session.

Two hours after the House vote, Sen. Barbara A. Hoffman, chairwoman of the Budget and Taxation Committee, told her Senate colleagues that the panel was working on a measure that would cut income taxes by 10 percent over the next five years.

In earlier statements, Hoffman had seemed skeptical that the state could afford a tax cut.

But she said spending cuts already proposed by the committee, coupled with rosier revenue projections for this year and next, make a tax cut possible.

These developments, Hoffman said, "provide a sound foundation for a measured program of tax reductions, if it is the will of this body to provide them."

Senate President Thomas V. Mike Miller said later that he supports the committee's tax plan, calling it "a tax cut that the people deserve."

While support from Miller, Hoffman and the Senate committee gives the tax relief effort a crucial boost, it does not guarantee enactment as major spending issues remain to be resolved with less than three weeks left in the legislature's 90-day session.

For example, lawmakers from around the state are pressing for more state education aid in exchange for their support for the plan to funnel $254 million in new aid to Baltimore schools.

Miller said the fiscal plan being developed by the committee does not account for costly new spending, and he warned lawmakers that they are asking for too much.

"This plan takes a two-by-four to the hogs to get them to back away from the trough," Miller said.

The House passed its version of tax relief last night after several weeks of intense negotiations over its size and form.

Both House Speaker Casper R. Taylor Jr. and Gov. Parris N. Glendening had introduced legislation to cut the state's income tax collections by 10 percent over three years by trimming the top tax rate to 4.5 percent.

But liberals worried that such a large reduction would force cuts in important government programs. And other legislators objected to raising one tax to help pay for a cut in another.

Glendening has proposed doubling the state tax on cigarettes, while Taylor and other House leaders proposed increasing taxes on some telecommunications services, such as cable television and Internet access.

In the end, the House ruled out including any tax increases in the bill. Both the tobacco tax and telecommunications proposals are on hold.

A Glendening spokeswoman said the governor was reserving comment on the bill until he had studied its implications.

The House income tax measure seeks to merge two divergent goals. It hopes to spur job development by cutting the top tax rate, a priority with the state's business groups.

But, at the insistence of liberal-leaning Democrats, it includes a child credit to provide significant relief for lower-income families.

"This bill came in with most of the benefit going to the higher wage level," said Del. James C. Rosa-pepe, a Prince George's Democrat who helped craft the final legislation. "What the committee did was tilt this to -lower- and middle-income working people."

Few delegates seemed enthusiastic about the final product. But only seven voted against the bill -- six liberal Democrats and one conservative Republican, Del. Raymond Beck of Montgomery, who said it provided too little tax relief to middle-income Marylanders.

The bill would cut the top tax rate from 5 percent to 4.9 percent next year, and to 4.8 percent in 1999.

The legislation would also create a tax credit of up to $350 per child for families with an adjusted gross income of less than $45,000. The higher the family's income, the smaller would be the credit.

The child credit would be fully refundable, meaning that a family could receive cash back from the state, even if the credit was larger than the family's tax liability -- a provision that resembles the federal earned income tax credit.

In another effort to make the tax code more progressive, the measure also would phase out personal exemptions for individuals earning more than $100,000 and joint filers with incomes of more than $150,000.

Under the bill, a family of four, with an adjusted gross income of $30,000 would see its 1997 state tax of $1,440 drop by $334 in 1999, according to the legislature's fiscal analysts.

A family of four with an adjusted income of $84,000, would see its tax bill of $4,140 drop $117.

Meanwhile, a single taxpayer, with an adjusted income of $21,800, would realize a $38 tax savings.

The bill was drafted so that the cut would have no impact on the "piggyback" income taxes collected by Baltimore and the state's 23 counties.

The tax cut will mean the loss of some $300 million in revenue in a state General Fund budget of about $8 billion, once the reduction is fully in place.

Pub Date: 3/18/97

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