Competing tax plans

House, Senate divided on individual, corporate levies

November 10, 2007|By Laura Smitherman and Andrew A. Green | Laura Smitherman and Andrew A. Green,Sun reporters

The Maryland Senate and House of Delegates charted divergent courses yesterday for closing a $1.7 billion budget gap, with the Senate approving a plan that increases the sales, tobacco and corporate income tax rates while House leaders pushed an alternative that more heavily taxes the wealthy and corporations.

The Senate voted 24-23 yesterday to approve a plan that would raise more than $1.4 billion in new tax revenues a year.

The measures now go to the House, where a committee approved alternate versions of the legislation yesterday. Many of the elements of the plan being considered by the House are identical to what the Senate approved, but the two chambers remain divided over how progressive to make the individual income tax and how to ensure that corporations pay their fair share of taxes.

The Senate's close vote reflected the unease of many conservative Democrats, particularly those from the Baltimore suburbs, with the tax package championed by Democratic Gov. Martin O'Malley.

Nine Democrats joined all 14 Senate Republicans in voting against the plan. Critics decried the tax proposals and called for more spending cuts. They said the tax measures would be a burden on lower-income and middle-class families, and would drastically affect spending habits, inhibit business and even discourage people from living in the state.

"It's clear that every Marylander is going to pay more, significantly more," said Sen. David R. Brinkley, the minority leader from Frederick County.

Sen. Bobby A. Zirkin, a Baltimore County Democrat who voted against the tax bill, said many elements did not seem well thought-out. "To throw things against the wall and see if they stick is not the way to do this," he said.

But the Democratic-controlled chamber voted to limit debate, ending any hopes for a lengthy filibuster, and the legislature appears headed toward compromise on a package that raises taxes, curtails some spending and boosts health care programs and transportation projects.

"We have lots of work to do, but we are finding common ground - recognizing that the cost of delay is too high, and failing to act now will cost us another $500 million that should go to our schools or health care or public safety," O'Malley said in a statement yesterday.

Under the Senate tax bill, the sales tax would rise from 5 percent to 6 percent, the tobacco tax would double to $2 per pack of cigarettes and the corporate income tax would increase from 7 percent to 8 percent - all measures sought by O'Malley. The chamber jettisoned O'Malley's proposed reduction of the state property tax and largely rejected his proposals for making a flat personal income tax structure more progressive.

A late addition to the bill was the so-called "snowbird" provision. It would define a Maryland resident as someone who lives in the state for more than three months, instead of six months under current law, and subject them to the state income tax.

Supporters say that it would ensure that residents who spend most of the year outside of Maryland in lower-tax locales, mostly in the Sun Belt, carry their share of the tax burden. They contend it could raise as much as $60 million. Opponents, however, say the bill unfairly targets retirees, including some on fixed incomes, and would prompt residents to abandon Maryland entirely.

The Senate rolled back O'Malley's efforts to shift the income tax burden to high-wage earners, establishing new top brackets of 5 percent and 5.5 percent, instead of the 6 percent and 6.5 percent the governor favored. The Senate also eliminated some of the governor's efforts to provide income tax relief for low- and middle-income families.

But a House committee voted in favor of three new top income tax brackets and an increase in personal exemptions for lower- and middle-class families. The Senate included a much smaller increase in personal exemptions.

"This plan, unlike the Senate plan, actually makes the tax code more progressive, which means it actually gives more relief to people at the lower end of the income range," said Del. Kumar P. Barve, the majority leader from Montgomery County.

Under the House proposal, the 5.25 percent rate would apply to net individual income above $125,000 a year and joint filers' income above $175,000 a year. The 5.5 percent rate would kick in at $150,000 for individuals and $200,000 for couples, and the 5.75 percent rate would apply to individual incomes above $200,000 a year and joint incomes over $250,000 a year.

The House plan would provide a break for individuals earning less than $100,000 a year and for couples earning less than $150,000 by increasing the individual exemption to $3,200. The exemption is currently $2,400. People with higher incomes would see their exemptions shrink.

The House and Senate also are at odds over proposed changes to corporate taxes.

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