Public asks who'll pay

No consensus among experts, residents on O'Malley's proposals to address deficit

September 23, 2007|By Andrew A. Green and Larry Carson | Andrew A. Green and Larry Carson,Sun reporters

To fix Maryland's budget, Gov. Martin O'Malley has proposed the most complicated fiscal plan Marylanders have seen in at least 15 years, with some taxes going up, others going down, and some doing both at the same time. Now taxpayers and business owners across the state are trying to figure out: What does it mean for me?

O'Malley says that even though he would raise $2 billion in revenue, most people would pay less. Republicans say everyone would pay more. Tax experts are divided on the question, and a lot of average Marylanders say they're just not sure.

"There must be another way. In the long run, overtaxing is unfair," Therese Shell of Gaithersburg said while strolling outside The Mall in Columbia on Friday. "But if it's a small increase, it might not matter."

O'Malley has been releasing the details of his proposals one at a time, in the hope, he said, that Marylanders will get a chance to digest each one and come to a conclusion about the package as a whole over the coming weeks. That means that even the legislators he wants to approve the package in a November special General Assembly session don't know all the details yet.

Based on what he has revealed so far, a family earning $80,000 a year might save $121 a year, depending on its shopping habits and the value of its home. Smokers, car buyers and the wealthy would pay more.

The major elements of O'Malley's plan include:

An increase in the sales tax rate from 5 percent to 6 percent and an expansion of that levy to cover a handful of services such as gym memberships, real estate services and tanning. A trip to Wal-Mart or Target that used to cost $40 would now cost $40.39. A big-ticket item, like a $2,000 plasma TV, would cost an extra $20.

Changes to the state income tax brackets that would save money for individuals with taxable income of less than $157,200 and married couples with taxable income of less than $214,100; low-income workers would get an extra boost from an expansion of the earned income tax credit, but top earners, especially those earning more than $500,000 a year, would pay thousands more.

A doubling of the cigarette tax to $2 a pack.

An increase in the vehicle titling tax from 5 percent to 6 percent. That would cost an extra $200 on a $20,000 car.

A cut in the state property tax rate of 3 cents per $100 in assessed value, to be phased in over three years. The state tax - which is only a small portion of what homeowners pay - is now 11.2 cents per $100 in assessed value. The owner of a home assessed at $300,000 would save $90 a year.

An increase in the corporate income tax rate from 7 percent to 8 percent, with the money dedicated to higher education and transportation, and new measures to make sure more businesses pay taxes.

The legalization of slot machine gambling. O'Malley estimates the state would collect between $500 million and $600 million a year in taxes on slots revenue.

"If you take all of these things together ... the vast majority of Maryland families will be paying less," O'Malley said at a stop in Ellicott City on Thursday. "Hold these numbers up, talk to different foundations, institutions, academics from all perspectives of the philosophical and political spectrum, and see for yourself."

The consensus so far from the experts is that there is no consensus. The Tax Foundation said on its blog that O'Malley might as well be hosting the TV show The Biggest Loser, picking a few favored groups ("married, home-owning families, with children, that make under $200,000 per year") to protect and dooming the rest to big tax increases.

"It may turn out that many of Maryland's families fall on the wrong side of The Biggest Losers' giant scales," the blog says.

But Henry Bogdan, director of the Maryland Budget and Tax Policy Institute, which focuses on the needs of low- and moderate-income people, said O'Malley's plan does a great deal to moderate its impact on the poor.

An expansion of the earned income tax credit, the new lower income tax brackets and the property tax cut mitigate the more regressive elements of the package, such as the sales tax increase, the titling tax increase and slots, Bogdan said.

"He seems to be doing what he says" in terms of protecting working families, Bogdan said. "We're very encouraged by that."

Whom the plan helps and whom it hurts is hard to assess. The effects of the income tax changes are relatively straightforward, though some analysts said they feared that the proposal could insert a marriage penalty into Maryland's tax code or, in some cases, force people into the federal alternative minimum tax.

But the rest of the plan depends on individual choices and circumstances, and on the hard-to-estimate impact of corporate tax changes on consumer prices and economic growth.

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