Md. Democrats to introduce tax increases

Raising state sales levy to 6% among proposals

With `slots, you still fall short'

Up to $700 million deficit predicted with gambling

January 23, 2003|By Tim Craig and David Nitkin | Tim Craig and David Nitkin,SUN STAFF

In an alternative to Gov. Robert L. Ehrlich Jr.'s budget-balancing plan, Democratic legislative leaders say they will introduce a broad array of tax increases by Monday - a package that will include a proposal to increase the state's 5 percent sales tax for the first time in 26 years.

The 1-percentage point sales tax increase is part of a series of tax bills that will also include higher gasoline levies, closing corporate loopholes and expanding the sales tax base to include consumer services and business-to-business transactions.

Democratic leaders in the House say they don't expect all the bills to pass. But they say the proposals should be part of a broad-ranging discussion of how to bring the state's finances in order quickly, and whether slots revenue should be part of the solution.

Legislative analysts say that the state faces a budget deficit for the foreseeable future even with the governor's soon-to-be-released plan for 13,500 slot machines at three racetracks.

"Even if you have slots, you still fall short," said House Speaker Michael E. Busch, an Anne Arundel County Democrat. "If we are going to fully fund education, fully fund transportation, fully fund school construction and not lay off state workers ... you have to take a look at additional revenue."

That sentiment was echoed yesterday by one of the state's leading Democrats, Baltimore Mayor Martin O'Malley, who criticized his party for exacerbating the problem by cutting income taxes in recent years.

Ehrlich has threatened to veto any new taxes, so it is unclear if a majority of the General Assembly would be willing to take a political hit by voting for higher taxes with the knowledge that the governor would turn back the legislation.

The governor has attempted to draw a clear choice for lawmakers: approve slots, or cut programs by hundreds of millions of dollars. "Anything that is income or sales is a nonstarter," Ehrlich said yesterday.

Because of mandated increases in public education, legislative analysts estimate the state will face a deficit of between $500 million and $700 million in the budget year that begins July 1 next year even with slots revenue. If slots are rejected, the anticipated deficit would exceed $1 billion.

After hearing those projections yesterday, Del. Sheila E. Hixson, a Montgomery County Democrat and chairwoman of the Ways and Means Committee, said she is gathering co-sponsors for her package of tax bills as a means of prompting debate over deficit solutions.

One bill, Hixson said, would generate $600 million a year by raising the sales tax rate to 6 cents on every dollar. The rate has not changed since 1977.

Another proposal, she said, would expand the sales tax by applying it to more items, including some business-to-business services and possibly to professional services such as those of lawyers and doctors. A separate bill may be introduced to expand the sales tax to include gas purchases.

The latter idea, along with other bills that would raise the gas tax by 5 or 10 cents, are designed to replenish a transportation trust fund. Ehrlich has proposed transferring $300 million from that fund over the next two years to balance the budget.

"You have to replace that transportation money," Busch said. "There has been no direction given from the governor's office on how he is going to do that."

While Senate President Thomas V. Mike Miller has been historically reluctant to embrace tax increases, other Senate Democrats yesterday recognized the need for additional revenues.

"There is a real desire to solve this problem in the long-term," said Sen. Edward J. Kasemeyer, a Howard County Democrat and budget subcommittee chairman. He added that slots will not provide enough money for the state's future needs.

O'Malley, in Annapolis yesterday to lobby for school construction funds, said he supports slots but does not think state leaders should rely on them to balance the state budget.

"The more intellectually honest and open way is raising revenue through taxes, not gambling gimmicks that target poor people," he said.

Similar to arguments he voiced a year ago, O'Malley asked leaders to repeal what he called "the token Democratic tax cut" - a 10 percent personal income tax reduction phased-in over five years and completed this year.

Tax increases and slots are under consideration largely because of a measure approved by the General Assembly last year to boost public education by $1.3 billion over six years.

At an afternoon briefing before the Ways and Means Committee, the legislature's chief financial analyst predicted grim budget conditions for the next several years because of increased education costs.

Warren Deschenaux said state spending is forecast to increase faster than the rate of economic growth during healthy times.

Sun staff writer Michael Dresser contributed to this article.

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