Compromise near on taxes

After initial objection, modified plan is likely to pass House

Montgomery Co. delegation persuaded to back tax plan

November 11, 2007|By Andrew A. Green and Laura Smitherman | Andrew A. Green and Laura Smitherman,SUN REPORTERS

The House of Delegates gave preliminary approval last night to a modified version of Gov. Martin O'Malley's tax plan after objections by Montgomery County Democrats nearly derailed his efforts to resolve Maryland's budget shortfall.

Under the new plan expected to pass the House early this morning, the sales tax would not be extended to any additional services. Proposals by O'Malley and the state Senate to tax computer services, real estate management and health clubs drew widespread protests, as did an earlier House proposal to tax repair services.

House leaders also agreed to soften a proposed increase in the hotel tax, raising it from 5 percent to 7.5 percent. The original plan called for the tax to be 10 percent.

The sales tax and car-titling tax rates would be increased from 5 percent to 6 percent, as in the Senate plan; the income tax would be changed to shift the burden to higher-wage earners; and corporate taxes would be increased from 7 percent to 8.75 percent.

The House plan includes a measure designed to make sure corporations pay taxes on all their Maryland profits, which O'Malley favors but the Senate rejected.

The net effect of the House's changes yesterday would be to reduce the value of the revenue package to about $1.4 billion - a difference that would have to be made up with more cuts.

Despite the differences, the overall structures of the House and Senate plans are similar, and lawmakers said they were optimistic that the two chambers can come to agreement and send legislation to the governor to close a projected $1.7 billion budget shortfall.

"We are presenting a highly progressive tax package here, and I'm confident that it is going to take care of the low- and middle-income workers of Maryland," said Del. Kumar P. Barve, the majority leader from Montgomery County.

Republicans fought against the plan, saying higher taxes would hurt families and threaten the economy. "This is a very dangerous thing to do when our economy is on the precipice," said Del. Christopher B. Shank, the minority whip from Western Maryland.

Consensus among Democrats came only after early vote counts showed that a plan for $1.5 billion in tax increases was far short of the support necessary for passage.

As expected, many of the party's more conservative members said they would not vote for parts of the package, but the defection of many Montgomery County legislators threw the session briefly into chaos.

However, after a frenzied series of caucus meetings and threats of an even less palatable plan, the House appeared likely to endorse legislation similar to bills O'Malley proposed.

"I think it's on track," said Del. Adrienne A. W. Jones, the speaker pro tem from Baltimore County. "I think they understand it better."

As Democrats huddled yesterday, some Republicans objected to the process. They contended that meetings among Democrats on the Ways and Means Committee appeared to violate the state's open-meetings law and committee rules. "They are crafting state policy in a back room," House Minority Leader Anthony J. O'Donnell said.

O'Malley met with Montgomery County delegates and then the entire Democratic caucus in an attempt to shore up support. He emerged upbeat, saying he believed a compromise was possible.

Del. Luiz R.S. Simmons, a Montgomery Democrat, said delegation members felt the county deserved a greater share of state funding for transportation and schools because their constituents, among the wealthiest in the state, would pay about 60 percent of the income proposed tax increase.

"Nobody has studied or evaluated the impact on our county of these tax increases vis-a-vis northern Virginia, which has good schools, transportation and lower taxes," Simmons said.

After the initial caucus meetings showed insufficient support, House Speaker Michael E. Busch and other leaders presented an alternate plan that would have raised about $700 million and required at least $700 million in budget cuts. It included no new funding for transportation projects, environmental programs or school construction, and it appeared designed to be as unpalatable to Montgomery County as possible.

What would have especially hurt Montgomery County was a limit on the total level of state and local income taxes of 8.95 percent, which essentially would have forced the county to lower its income tax rates, leaving a major hole in the local budget. After more discussion, delegates agreed to return to a modified version of the original plan and were set to vote on it last night.

andy.green@baltsun.com laura.smitherman@baltsun.com

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