Maryland governor defends plan to raise taxes

Maryland Gov. Martin O’Malley on Wednesday defended his plan to raise taxes on residents who earn six-figure salaries or more, saying he considered it the “fairest way” to help close the state’s latest budget 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.

O’Malley’s (D) comments touched off a daylong effort by Democrats, Republicans, special interest groups and lobbyists to begin defining what the governor’s budget means for residents and the direction of the state.

“The governor’s budget redefines ‘wealth’ … and takes aim at the middle class,” said House Minority Leader Del. Anthony J. O’Donnell (R-Calvert). “Forget millionaires, this budget takes aim at thousandaires.”

O’Malley’s $35.8 billion spending plan would increase overall spending from last year by about 3 percent, in part by raising taxes on residents making $100,000 or more.

The governor cast what would be Maryland’s first broad-based tax increase in five years as necessary for sustainable funding of rising teacher pension costs, while also fully funding his administration’s education goals and expansion of health care for the poor.

The tax increase would be targeted at the roughly 440,000 Maryland residents who filed state income tax returns last year declaringsalaries of $100,000 or higher.

The plan would halve the annual $2,400 personal exemption for individuals making $100,000 to $125,000, and for families making $150,000 to $175,000. It would cap personal deductions for that group of earners, such as mortgage interest, at 90 percent of income.

For residents who make more, the governor’s plan would eliminate the personal exemption for earners and their family members entirely and cap deductions at 80 percent of income.

O’Malley said his office has calculated the tax increase would cost a family of four earning $150,000 an additional $191 annually.

“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 of our state and the futures of our children, there are difficult things we need to ask of one another … this is one of them.”

O’Malley also announced the state would seek a major tax increase on cigars and smokeless tobacco to match an increase the General Assembly passed on cigarettes last year. Anti-smoking groups said the tax would increase the price of some flavored cigars popular with teenagers from $1.45 to $2.15 each, and likely reduce demand.

The governor’s budget also repeats past failed attempts by O’Malley to cut tax benefits for the coal industry, telecom companies and other sectors.

O’Malley also confirmed that he will seek to double revenue from the state’s “flush tax” on water and sewer bills.

Rather than a flat fee of $2.50 per household, the fee would be based on consumption, and would rise for most and shrink for a few. Residents using well water and septic systems would see their fees double to $5.

O’Malley also detailed a plan he said had become necessary to address the rapidly expanding cost of teacher pensions in the state.

The plan calls for shifting half of the combined cost of teacher pension and social security costs to counties.

After resisting such a shift for years, O’Malley said he had become convinced the state had become 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.

O’Malley said the shift would cost already cash-strapped counties $239 million annually, but the counties’ share of new tax revenue from high-income earners would cover $111 million of that.

At least for the first year, other changes to county aid and tax programs would be instituted to more than offset the impact, O’Malley said, with local governments at most suffering losses of $1 million to $2 million each.

But the shift would not treat counties equally.

With the state’s greatest share of millionaires and other high earners, Montgomery County would net $37.2 million annually. Combined with other sweeteners, the revenue would not only cover the county’s new $41 million cost for pensions, but leave more than $18 million extra that could be used to help close the county’s projected $135 million shortfall.

The situation would be far different in Prince George’s. The additional income tax revenue would net the county $11.7 million, or less than a third of Montgomery’s take. With other adjustments, the package would just break even in covering Prince George’s new $27 million annual pension cost.

Ten counties and the city of Baltimore would fare worse, losing an average of $1.3 million.

Sean Johnson, a lobbyist for the Maryland State Education Association, which has resisted a shift, said O’Malley’s plan earned points for coming up with new and creative ways to cover the additional costs to counties in the first year. But in subsequent years, he said, estimates show the plan would leave counties exposed to more than $100 million in new costs. “All’s well and good in the [next] budget year, but the out-year costs don’t look pretty.”

Among other details in 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.

■Tuition at the University of Maryland at College Park and other state universities and colleges will increase 3 percent.

■The cost of a death certificate will double to $24 from $12.

Aaron Davis covers D.C. government and politics for The Post and wants to hear your story about how D.C. works — or how it doesn’t.
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