Ehrlich appears open to tax boost

Proceeds would be used to help balance budget

Businesses, properties pondered

March 13, 2003|By Tim Craig and David Nitkin | Tim Craig and David Nitkin,SUN STAFF

Gov. Robert L. Ehrlich Jr. appeared to soften his no-new-taxes pledge yesterday when he told legislative leaders that he would consider higher business and property taxes to balance the budget.

During a closed-door meeting with the presiding officers of the House and Senate, Ehrlich indicated those options could be acceptable to him if it means averting a stalemate on a budget agreement.

It was the first time Ehrlich met with House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller to discuss ways to fix a shortfall that has grown larger in the past week.

The governor presented legislative leaders with a $450 million list of ideas for filling the widening gap - including spending cuts, a 5-cent increase in the property tax, and higher corporate taxes. The administration declined to release details of the choices, and Ehrlich would not say he had suggested higher taxes. "We are not proposing any taxes," Ehrlich said minutes before the meeting. "We are just sitting down with the leaders to see where they are."

Other participants, however, confirmed his proposal and called the meeting a productive step toward building consensus.

"The important thing here, the governor has come forward with recommendations of revenues and proposed reductions that are welcomed by the legislature," said Busch, who has long proposed additional taxes to help balance the budget.

Later, when asked directly about higher business taxes, Ehrlich would only say: "To the extent the corporate community can be part of the solution, it's appreciated."

He said it was "premature" to talk about specific components he would endorse.

Campaign pledge

Ehrlich campaigned on a pledge not to raise taxes. Since being inaugurated, he has said that his pledge was limited to sales and income taxes, but that other types would be discussed as a last resort.

Administration officials said yesterday that higher property and corporate taxes would not violate the governor's promise, and they cautioned a final decision has not been made. "His tax pledge was not across the board," said Paul E. Schurick, the governor's communications director. "He said no sales or income taxes, but said he would consider anything else."

Busch said the governor discussed the option of raising the state property tax from 8 cents to 13 cents per $1,000 in assessed property value, which could raise $165 million.

The proceeds would repay money borrowed by the state for construction projects such as schools, hospitals and courthouses. Currently, tax dollars from the general fund are diverted to repay the loans, so a property tax increase would replace that money and free up dollars for other state programs.

The governor also suggested raising the corporate income tax and filing fees to bring in an additional $100 million. Details on the size of the increase were unavailable; the state currently taxes corporate profits derived from activities in Maryland at 7 percent. Sources say business interests have told the administration that higher taxes would be easier to administer than a legislative plan to close corporate tax loopholes.

In recent weeks, Democratic leaders have suggested they would support Ehrlich's slot machine proposal if it was coupled with a significant tax increase. They said such a combination is the only responsible solution for the state's fiscal obligations, which includes a pledge to spend an additional $1.3 billion yearly for public schools.

Yesterday's developments came as House legislative committees continue to discuss deeper program cuts and other additional taxes. A vote could come as soon as today on ideas such as an income tax surcharge on residents who earn more than $200,000 a year, and families who earn more than $250,000.

Other measures being debated include higher alcohol and tobacco taxes, and Democratic leaders are calling for an increase in the sales tax from 5 percent to 6 percent. Ehrlich has rejected those proposals.

Administration officials say many of the ideas discussed during the private meeting - including the tax increases - have been considered by legislative leaders for months.

If Ehrlich embraces tax increases, however, it could prompt an outcry from his most loyal backers.

"In the Republican caucus, I believe there is a consensus we can do slots, we can do cuts; other than that, the consensus begins to wane," said Del. Alfred W. Redmer Jr., the House minority leader from Perry Hall.

Kathleen Snyder, president of the Maryland Chamber of Commerce, said business leaders are willing to listen to any proposal, though they might not support higher taxes. She said the group has not stated a preference for either loophole closing or a higher levy.

"We urge the General Assembly to use great caution in the discussion about tax increases during a recession," Snyder said.

Cuts considered

The governor and legislative leaders also discussed ways to cut at least an additional $100 million from next year's budget.

Ehrlich suggested $433 million in cuts when he unveiled his budget in January. The $22.8 billion plan was balanced in part with one-time fees from racetrack owners for slot machine gambling.

However, the plan was knocked off kilter after the governor decided to lower the fees charged to track owners by $230 million. And this week, state officials said a weaker-than-expected economy is reducing tax collections.

Combined, those factors created the $450 million budget hole that prompted yesterday's meeting. Busch, who has been at odds with the governor, praised his willingness to consider different options for resolving the budget dispute.

Ehrlich said he called the meeting to "discern where the common ground really is." He also said he asked legislative leaders to "come back to me with a concrete proposal," and that follow-up sessions among high-level staffers could occur as soon as today.

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