O'Malley presents his fiscal proposal

Higher sales tax, slots part of plan to resolve state's budget shortfall

September 19, 2007|By Andrew A. Green | Andrew A. Green,SUN REPORTER

Marylanders would pay more in sales taxes and higher titling tax when they buy cars, and corporations and smokers would pay more under Gov. Martin O'Malley's plan to fix a budget shortfall he now estimates at $1.7 billion.

But those increases would be coupled with a cut in the property tax and reductions in the income tax rate for most Marylanders, though top earners would pay more, according to legislators O'Malley briefed yesterday.

Despite his plans to add hundreds of millions in new spending to build new roads, protect the Chesapeake Bay, expand access to health care and hold down college tuition - a total package of $2 billion or more - the governor said most people would wind up paying less. He offered no figures to support that claim.

Speaking to reporters later, O'Malley said he will call a special session of the legislature to consider his plan. He said he anticipates a weeklong session, no later than early November.

"This plan allows us to protect important investments in our schools, to protect our quality of life as Marylanders and also to get our fiscal house in order, in a way that also at the end of the day would have 83 percent of us paying less in taxes, rather than more," O'Malley said on WBAL-TV.

Neither the governor nor his aides would explain how that could be achieved while still closing the budget shortfall.

Yesterday's presentation to lawmakers offered the most detailed view yet of what is likely to be the defining initiative of O'Malley's administration.

The delegates and senators - all Democrats - emerged with favorable reviews but with a sense that O'Malley's big gamble is not a sure thing. Republicans immediately panned it as a big-government grab at taxpayers' wallets, and Democrats are split over some of the tax proposals and over O'Malley's proposal to legalize slot machine gambling.

"People are solidly in one camp or another on that issue," said House Speaker Michael E. Busch, who helped block slots over the last five years. "How much political will does he have to drive that through?"

Key elements

The governor gave the legislators nothing in writing and has not publicly offered any details of his plan. But based on interviews with those in the meeting, here are some key elements of his proposal:

An increase in the sales tax from 5 percent to 6 percent, a change that analysts estimate would generate about $750 million next year. O'Malley will also propose some expansion of the tax to cover services, but lawmakers said that was not a major component of the plan.

Increased income tax rates for top earners, coupled with rate reductions for low- and middle-income families. Currently, all taxpayers qualify for the top bracket of 4.75 percent. Local income taxes add roughly another 3 percentage points.

Legalized slot machine gambling, which O'Malley estimated would generate $500 million to $600 million a year in revenue for the state.

An increase in the corporate income tax rate from 7 percent to 8 percent. The proceeds would be split between transportation projects and higher education. O'Malley made college tuition affordability a centerpiece of his campaign last year.

Higher titling taxes on cars to fund transportation improvements. The current rate is 5 percent. This increase and the new corporate tax revenue, along with other measures, would provide about $400 million more a year for roads and mass transit, according to lawmakers.

No immediate increase to the gas tax, though future increases could be tied to inflation.

A $1-a-pack increase in cigarette taxes, a doubling of the current rate. O'Malley said the money would provide an initial funding source for expanded health care coverage.

A reduction in the state's portion of the property tax, from 11.2 cents per $100 in assessed value to 8.4 cents per $100.

Corporate tax compliance measures. O'Malley has supported "combined reporting," a tax law mechanism designed to prevent large companies from hiding profits in other states. However, businesses oppose that idea, and the governor said he is considering other options.

A less certain element of his plans is a "green fund" to pay for Chesapeake Bay cleanup. O'Malley has said he supports such a program, but those in the meeting said it was not clear whether it will be included in the governor's fiscal package. A similar plan considered this year would have been funded through new development fees, but O'Malley has not committed to that approach.

The governor laid out his ideas in a PowerPoint presentation in Government House over scrambled eggs, bacon, sausage and, for the health-conscious, bran muffins and fruit. Lawmakers said he ran the show himself and appeared intimately familiar with the details.

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