Senate panel OKs doubling '98 tax relief Bill would increase income levy cut from 2 percent to 5 percent

'Lot of money in the bank'

Surging revenues, healthy economy lead committee to action

March 17, 1998|By Thomas W. Waldron | Thomas W. Waldron,SUN STAFF Sun staff writers Michael Dresser and Liz Bowie contributed to this article.

With the state budget flush with unanticipated cash, a Senate committee voted yesterday to more than double the income tax relief Marylanders were slated to receive this year.

The Senate Budget and Taxation Committee voted to cut state income tax collections in 1998 by 5 percent, instead of the 2 percent reduction that was enacted last year and went into effect Jan. 1.

At 5 percent, the size of the cut proposed for this election year is larger than most legislators had been contemplating.

But a recent strong surge in state revenues and a healthy economy convinced the committee that a faster acceleration in the tax reduction was affordable.

"There's a lot of money in the bank," said Sen. Barbara A. Hoffman, chairman of the budget committee. "That's a good thing obviously, but you can have too much in the bank."

Under last year's tax bill, a typical family of four with an income of $40,000 will see its state tax bill decline $52 this year. The bill passed yesterday would increase that tax savings this year by an additional $78, for a total reduction of $130.

Fueled by higher-than-expected income tax receipts, the state has seen its budget surplus for the current year climb to $352 million. In all, the state has reserves totaling more than $1 billion.

With that rosy backdrop, the Senate committee has made only modest cuts in recent days to Gov. Parris N. Glendening's

proposed $16.5 billion budget for next year.

His plans to increase spending significantly for state colleges, kindergarten to 12th-grade education and programs for the developmentally disabled received no major cuts and are likely to win General Assembly approval, lawmakers said.

Yesterday, Glendening proposed nearly $38 million in additional spending -- in a "supplemental" budget that recycles money cut in recent days by legislative committees -- including $7 million for the University of Maryland, College Park.

The College Park money is designated for a variety of initiatives, including engineering and libraries, and is designed to bolster the university's status as Maryland's "flagship" campus. The governor and the Assembly have been criticized for not devoting more money to College Park in recent years.

Glendening also budgeted an extra $4.3 million for 29 low-achieving, "reconstituted" schools in Baltimore City and $2.2 million for eight such schools in Prince George's County.

"We are very pleased that this request has been supported, and that the state has seen fit to fund it," said interim Baltimore school chief Robert Schiller.

The city school system is seeking an additional $10 million in state aid for schools reconstituted in 1996. But, Schiller said: "We will fight one battle at a time."

With the committee's vote yesterday, the income tax legislation will be considered later this week by the full Senate, where approval is expected, lawmakers said.

Glendening and leaders in the House of Delegates also have endorsed more income-tax cutting, meaning some tax relief is likely to be approved before the General Assembly adjourns April 13.

The Senate committee also approved two other tax bills yesterday -- one to help the working poor and one that could benefit a small number of Maryland's wealthiest.

The first measure would make a portion of the state's earned income tax credit refundable, meaning families with incomes as high as $30,000 could receive larger tax refunds next year.

The legislation would cost the state about $18 million a year, said Hoffman, a Baltimore Democrat.

A second bill would limit the Maryland capital gains tax on the sale of out-of-state assets at $65,000. Hoffman said the measure would likely apply to only a handful of wealthy state residents and would serve as almost a "psychological" inducement to keep them residing in Maryland.

But the income tax bill was the centerpiece of the Senate committee's fiscal package.

Under legislation passed last year, state income tax collections were to be reduced by 10 percent over five years -- 2 percent annually starting in 1998.

The bill approved yesterday would cut taxes this year by a full 5 percent. Next year, taxes would be trimmed by another 1 percent -- for a total of 6 percent.

In 1999, legislators would reassess the fiscal picture to see if the tax cut could be accelerated. If not, the bill would allow the final 4 percent cut to be phased in as scheduled -- in 2001 and 2002.

Pub Date: 3/17/98

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