Md. special session moves quickly on tax package

May 14, 2012

Maryland’s General Assembly on Monday raced to approve a package of tax increases on six-figure earners, commercial real estate deals, tobacco products and even death certificates, pleasing unions and advocates for the poor but drawing protests from minority Republicans.

The higher taxes — mostly in the form of raised income-tax rates — would add up to hundreds of dollars in new costs annually for Maryland couples reporting combined income above $150,000. For those reporting income above $1 million, the additional annual tab would stretch into the thousands.

The tax increases would be retroactive to Jan. 1, meaning current payroll deductions for affluent Marylanders may not cover the tax bills residents will face next year.

The Senate appeared poised to give final approval to the tax package Tuesday. Democratic leaders in the House expressed confidence they could send the plan to Gov. Martin O’Malley (D) on Wednesday, despite discontent from some Montgomery County lawmakers, who argued the income tax increase hits their affluent jurisdiction too hard.

The quick action stood in stark contrast to the end of the legislature’s regular session last month, when movement on the revenue measures ground to a halt amid brinkmanship over whether to allow a full-fledged casino in Prince George’s County.

When the General Assembly adjourned April 9, it had approved a spending plan but not an accompanying revenue package sought by O’Malley.

The governor criticized lawmakers for the breakdown but then helped negotiate a compromise under which Democratic leaders agreed to reconvene to vote on tax increases but to put off the unresolved gambling issue, perhaps dealing with it in another special session over the summer.

With no Maryland state lawmaker facing reelection this fall, O’Malley has led Democrats in arguing that the tax increases — the first major increases since 2007 — are crucial to the state emerging strongly from the economic downturn. They would allow his administration to continue record funding for schools and other Democratic party priorities.

“It’s a small price to pay to live in this great state,” said Senate President Thomas V. Mike Miller Jr. (D-Calvert), who added that it was regrettable the legislature had to return to Annapolis at an estimated daily cost of $25,000 but that it was the right thing to do. County officials have warned that without higher taxes, teachers, police officers and other county employees could begin receiving pink slips as local governments adopt spending plans based on expected lower state aid.

In a highly orchestrated return to Annapolis on Monday, both chambers took up tax bills and completed hearings on the measures, and the Senate on Monday night voted to advance the more than $260 million package.

The Senate also gave initial approval Monday to another budget bill that had died last month. That legislation includes a negotiated deal to shift a share of Maryland’s growing teacher pension costs to counties. In exchange, the state will increase grant funding to local governments and allow counties to collect a form of recordation tax related to commercial real estate deals.

Republicans and some conservative Democrats questioned that measure, saying they were concerned that the estimated $35 million in new taxes on businesses would stifle growth. They argued the state would compare unfavorably with Virginia, which does not levy the recordation tax on landowners seeking financing for development.

But Republicans were more focused on disrupting the Democrats’ larger narrative that any new taxes were needed at all.

With increased borrowing, the budget lawmakers passed last month lifted overall spending by nearly $700 million, or 2 percent, in the budget year beginning in July.

With the tax plan that advanced Monday, spending would increase more — about $938 million, or 2.7 percent.

Without some new revenue, however, general-fund expenditures would decline. Specifically, hundreds of millions of dollars in discretionary grant funding would be eliminated, mostly to counties for education.

Montgomery County would lose nearly $33 million and Prince George’s County more than $38 million.

At a news conference, Republican legislators said O’Malley and fellow Democrats were out of touch with Maryland families. The Republicans vowed to make as much noise as possible about the planned tax increases.

“There are lies that continue to be told to the citizens of Maryland,” said House Minority Leader Anthony J. O’Donnell (R-Calvert), referring to whether tax hikes are needed. “They are not going to get away with this lightly.”

Under the revenue bill, income tax rates for most of the nearly 14 percent of residents who report $100,000 or more in Maryland taxable income would rise a quarter percentage.

With its large population and relatively high percentage of six-figure earners, Montgomery would shoulder a much higher portion of the burden for the income tax increase than any other county.

Some Montgomery delegates are planning to offer an amendment Tuesday that would replace the income tax increase with an increase in the sales tax. That would generate more tax revenue, and the idea’s supporters say some of the money could be earmarked for mass transit projects.

The amendment has virtually no chance of passage, however, and House leaders said they remain confident they will be able to attract the 71 votes needed for final passage of the bill Wednesday.

Under the legislation, levies on little cigars, which public health advocates say are increasingly sought by adolescents, would rise from 15 percent to 70 percent, and taxes on smokeless tobacco products would rise from 15 percent to 30 percent. The cost of a first Maryland death certificate would double from $12 to $24.

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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