In Annapolis, talk of deep cuts and higher taxes

Wait 'til next year.

That's the theme of this year's General Assembly session when it comes to contentious possible solutions to the fiscal mess Maryland - like all other states - finds itself in.

The theme bothers Republicans. They worry that higher taxes might be pushed through Annapolis next year by a Democratic majority fretful about making such moves before November's elections.

"They are trying to use smoke and mirrors and Band-Aids to get through this year," said Senate Minority Leader Allan H. Kittleman, a Howard County Republican. "Next year," he predicted, "they will have to have the highest tax increase in the history of Maryland."

Democrats say that's not true, but few expect the $13 billion plan Gov. Martin O'Malley is set to unveil Wednesday will tackle the state's structural deficit. Many believe the spending proposal will include unpalatable cuts to close a $2 billion gap between expected revenue and spending on programs - but also short-term fixes and placeholders in expectation of a new round of federal stimulus funds.

O'Malley's chief of staff said the governor's spending plan for the coming year, which by law must produce a balanced budget, will have no new taxes in it. Still, O'Malley acknowledged last week that "nobody will like" the proposal he's working on.

It wasn't supposed to be like this in an election year.

O'Malley came into office three years ago promising a permanent solution to Maryland's financial troubles. He and his allies in the heavily Democratic legislature took a risk in 2007, summoning lawmakers to Annapolis for a special session that was supposed to produce a permanent solution. They passed a sales tax increase, some tax cuts and a gambling plan.

They were banking on voter anger over a tax hike subsiding by now, and thought they'd be rewarded by a smooth budget process and robust funding for education, the environment and other programs.

Then came the worst economic downturn in a half-century. After 21 straight months of hardship, Marylanders have lost their jobs or endured lower pay, and state income tax revenue has plunged.

"In recent years, we've had to confront extraordinary problems," said O'Malley chief of staff Matthew D. Gallagher.

Those problems show few signs of ending. If the economy doesn't improve - or if budget cuts are somehow less appealing than a tax increase - here are a few changes that some lawmakers say could get fresh attention after the election:

•Sin taxes: Annapolis hasn't boosted the state's excise tax on liquor in more than half a century, and the tax on beer and wine was last changed in 1972.

Right now, those two taxes provide the state with about $29 million in general fund revenue, but Sen. Richard S. Madaleno, a Montgomery County Democrat, says his proposal to raise it to a dime-a-drink would bring in $200 million and encourage better behavior.

"There is a growing awareness of the costs of alcohol to our society," Madaleno said.

O'Malley opposes the idea, as do the leaders of both houses in the General Assembly.

But Henry Bogdan, managing director of the Maryland Association of Nonprofit Organizations, says lawmakers might change their minds once they understand the depth of proposed program cuts.

Industry lobbyists reminded lawmakers last week that the proposed tax would represent a 500 percent increase. They warned that Marylanders would flock across state lines to buy beer, wine and liquor. Also, they say, such a plan would hurt already-struggling small taverns and restaurants.

Another oft-discussed idea would expand sales taxes on fatty foods and create a so-called "snack tax." The General Assembly enacted such a plan during a fiscal crisis in the early 1990s but repealed it within four years. Since then, it has been proposed occasionally.

•Fuel taxes: Increasing the tax rate that Marylanders pay on gas could free up money for health, public safety and education, said Neil Bergsman, the director of the Maryland Budget and Tax Policy Institute, a left-leaning organization.

When the General Assembly raised the sales taxes in 2007, it left gas taxes alone and dedicated a chunk of sales-tax revenue to transportation. Bergsman says upping the gas tax by 10 cents a gallon would let lawmakers move $220 million into the general fund. Plus there would be an additional $100 million for transportation.

A bill to do that was introduced last year, but there's been little support.

Warren G. Deschenaux, the legislature's chief fiscal analyst, says ultimately there will be. "I don't know what other revenue there is to pay for transportation," he said.

•Extending sales taxes to services: Tax analysts complain that Maryland's revenue structure has not fully caught up with economic changes that are decades old. Services aren't taxed.