Md. bill saves income tax cut

Transit funds, taxes on estates and tuition would help pay for it

February 15, 2002|By David Nitkin and Howard Libit | David Nitkin and Howard Libit,SUN STAFF

Two days after leading lawmakers pledged that Marylanders would see a cut in their income taxes this year, General Assembly leaders unveiled legislation yesterday that would eliminate new tax breaks on estates and college tuition.

The $104.9 million revenue package - introduced by Senate and House leaders - creates an alternative to what lawmakers say are the most unpalatable components of Gov. Parris N. Glendening's proposed $22.2 billion spending plan for next fiscal year.

The governor wants to delay the final 2 percent stage of a five-year, 10 percent income tax cut, and has suggested tapping a variety of surplus funds that lawmakers are reluctant to touch.

Democratic Assembly leaders promised this week that they would fulfill the scheduled income tax cut, which means either finding $177 million in new revenue or trimming an equivalent amount of spending.

The bill released yesterday would help legislators move toward balancing the budget, and includes changes to three broad areas. Legislative leaders say they want to:

Raise $33.6 million by blocking a deduction for college tuition and a repeal of estate taxes - both part of the 2001 Federal Tax Act - from applying to the Maryland portion of income tax returns.

Reduce by $27.5 million the share of sales tax given as commissions or discounts to businesses who collect state revenue by selling lottery tickets, automobiles, wholesale tobacco and gasoline.

Reclaim $43.8 million in state general fund revenue that was set aside for future transportation projects last year, when the economy was stronger.

The bill has the backing of top Democrats in the House and Senate, who say its components are more responsible than some of Glendening's proposals.

"This is a way for us to restore the 2 percent income tax cut," said Del. Sheila E. Hixson, a Democrat who chairs the House Ways and Means Committee.

Many lawmakers remain concerned about other aspects of the governor's spending proposal. Some have criticized Glendening for using what they call gimmicks to balance the budget, including borrowing $50 million from an automobile insurance fund and taking $50 million from a welfare reserve fund. Critics of the transfers are looking for other options.

Sen. Barbara A. Hoffman, a Democrat and chairwoman of the Budget and Taxation Committee, said several of the raids on surplus funds rankled her, but added it was too early to say which she might reject.

By creating a longer menu of fiscal choices, the proposal released yesterday increases the complexity of reaching an agreement on next year's budget. Lawmakers still face the prospect of cutting tens of millions of dollars from programs in Glendening's spending plan, and deciding how much to borrow and how deeply to deplete reserves.

"It does make it harder," said Sen. Robert R. Neall, an Anne Arundel Democrat on the Budget and Taxation Committee. "You have to put together a package that receives the reluctant support of a majority of the House and Senate."

Aides to Glendening said the governor has not seen the plan but has agreed to cooperate with lawmakers as they suggest budget changes.

"The governor has said he is willing to work with the legislature in refining the budget proposal, and he's looking forward to doing that," said Michelle Byrnie, Glendening's press secretary.

Republican leaders said they could not support many components of the new bill.

The estate tax change is the same as a tax increase, they said.

"President Bush and Congress want Marylanders to pay lower taxes and receive a break on college tuition, but Maryland Democrats don't want that," said Del. James F. Ports Jr., the House minority whip from Baltimore County.

Democrats denied the charge. "All it does is keep in place the taxes that we had before," Hixson said. "We're not raising taxes on anything."

GOP leaders also said it is unfair to ask business owners who collect sales taxes to do more with less.

"We're saying, `You guys collect it for us, but we are going to cut the amount we pay you,'" said Senate Minority Leader J. Lowell Stoltzfus. "It's putting it on the back of people who don't deserve it."

Thomas S. Saquella, president of Maryland Retailers Association, said it would be "difficult" for his organization to fight the reduction in commissions. Lottery agents, for example, just had their share of sales tax raised a year ago from 4 percent to 5 percent, an increase that would be rolled back under the legislation.

"We'll be pretty concerned about that [bill], but I can't say I'm surprised to see it," said Saquella, adding that lawmakers made similar changes during the fiscal downturn of the early 1990s and reversed them when the economy improved.

Ports predicted that moving money from the fund for future transportation projects will force Democrats to raise taxes later.

"They are going to need to raise taxes because there won't be enough money for our transportation needs," he said. "The gas tax, the sales tax - they'll look at something a year from now."

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