The $2 billion plan

September 20, 2007

While many of the specifics of Martin O'Malley's ambitious budget proposal have not yet been revealed, its full purpose is now apparent: The governor aims not only to resolve the state's structural deficit but also to make Maryland's tax system a bit fairer than it is today. He will no doubt catch much heat for daring to recommend tax increases (and even his supporters ought not pass final judgment until the plan is fully vetted), but it's clear the governor is fundamentally on the right track.

That would be true if Mr. O'Malley's plan were merely attempting to close the deficit, which is projected to reach $1.7 billion in the next fiscal year. Much of that shortfall can be traced to $1.3 billion in increased school aid and the $1 billion state income tax reduction made in 1997. Both were popular measures, but they took the state's ledger badly out of balance. Budgetary Band-Aids since then have only postponed the inevitable.

But the governor also seeks to reform Maryland's tax code, shifting more of the burden of financing government to high-income earners. This is how he can make the claim that 83.5 percent of Maryland families will end up with a lower overall state tax burden under his plan. Leaving aside the curious exactness of such a claim - at least considering the veritable ocean of variables involved - that's a worthy goal.

So how would Mr. O'Malley cut your taxes? In large part by making Maryland's income tax more progressive. Currently, state residents pay 4.75 percent of income after the first $3,000 (not counting the local piggyback). It's essentially a flat rate; a millionaire investor pays his state income tax at the same rate as a garbage collector or a college student working a part-time summer job.

Under the governor's proposal, the 4.75 percent rate wouldn't kick in until earnings reached $15,000, while two higher rates - 6 percent and 6.5 percent - would be applied to single filers at the $150,000 and $500,000 marks, respectively. In effect, the income tax increase would be felt by only those families making more than $250,000. He would also expand the earned income tax credit for the working poor. Thus, for more than nine out of 10 filers, income taxes either would go down or remain the same.

But this is only one piece of a large puzzle. In the coming days, the governor is set to reveal many more details of a proposal that would not only raise the sales tax by a penny and the tax on tobacco by $1 a pack but also cut hundreds of millions of dollars in spending (including Thornton aid formerly regarded as sacrosanct) and add significant spending, too - especially for badly needed transportation projects and to expand health insurance coverage.

Make no mistake: Balancing a budget is seldom painless. There are significant elements in the O'Malley proposal that are troubling, not the least of which involves slot machines. But in the overall view, Mr. O'Malley's goals are laudable. Let the scrutiny of the vital details - and ultimately an informed public debate - begin.

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