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Maryland Politics
Posted at 11:52 AM ET, 01/18/2012

O’Malley defends tax hike on high earners

Maryland Gov. Martin O’Malley on Wednesday defended his plan to raise taxes on state residents who earn six figures or more, saying he considered it the “fairest way” to help close the state’s latest budget
Maryland Gov. Martin O'Malley (D). (Patrick Semansky - AP)
shortfall.

“This is not an exercise in popularity, it’s not a matter of greasing the weather vane. It’s a matter of figuring out what are the best decisions that we can make on behalf of the families we serve,” O’Malley said at a State House news conference detailing his $35.8 billion budget, which increases overall spending from last year by about 3 percent.

O’Malley’s budget includes the state’s first broad-based tax increase since 2007, and the governor cast it as necessary to facilitate a shift of state-paid teacher pension costs to counties, and to continue fully funding state education goals as well as an expansion of Medicaid services to the poor.

The tax increase is targeted at the 440,000 Maryland residents who filed state income tax returns last year declaring six-figure salaries or more.

The plan would halve the $2,400 personal exemption both for individuals making $100,000 to $125,000 annually, and for families making $150,000 to $175,000.

Above those amounts, the governor’s plan would eliminate the baseline exemptions entirely. Personal deductions for those earners would also be capped.

O’Malley said one estimate by his office suggested the tax increase would cost a family of four earning $150,000 an additional $191 annually. It now goes to the General Assembly, which must pass a spending plan by April.

“I don’t like asking for this, I don’t like doing this,” O’Malley said. “But in order to get us through this recession in advance of other states, and in order to protect the priorities of the people our state and the futures of our children, there are difficult things we need to ask of one another in these difficult times —and this is one of them.”

O’Malley also announced the state would seek an increase on taxes on cigars and other tobacco products to match an increase the General Assembly passed on cigarettes last year. And he said his administration would again lobby for cutting tax benefits for the coal industry, telecom companies and others that have repeatedly failed to gain support in the legislature.

The governor also confirmed that he will seek to double fee revenue from the state’s so-called “flush tax” on water and sewer bills. Rather than a flat fee of $2.50 per household, the fee will be based on consumption. Those using wells and septic systems will see their fees double to $5.

O’Malley also detailed a plan he said would keep counties whole next year while they begin to share the burden of teacher pension costs, now funded by the state. The budget increases a number of state aid programs to counties and eliminates other charges coming due on past borrowing. O’Malley said the changes would add up to $244 million in savings for counties, more than offsetting the $239 million they’ll be asked to pay next year toward teacher pensions.

After resisting a teacher pension shift for years, O’Malley said his thinking had “evolved” on the issue, and that he had become convinced that the state is too far removed from the decision-making process by local school boards that set teacher salaries and therefore increase the pension costs paid by the state.

Maryland’s share of teacher pension costs has more than doubled from $431 million in 2006 to $919 million in 2012.

Other new details from O’Malley’s budget:

— The state will spend $4.4 million to hire 93 new employees to increase security at the Clifton T. Perkins Hospital, where two patients were killed last year.

— Maryland will ready for a likely fight with Internet retailers, including Amazon.com, imposing a 6 percent sales tax on purchases made online from Maryland businesses.

— The state will attempt to save money by reviewing what medications Medicaid patients are prescribed and adjusting some prescriptions to cheaper versions of drugs, where available.

— Tuition at the University of Maryland at College Park and other campuses will increase 3 percent.

— O’Malley is still weighing a plan to boost spending on transportation projects by increasing the state’s taxes on gasoline. He said he will release that plan in coming weeks.

By  |  11:52 AM ET, 01/18/2012

 
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