The income tax changes, along with another plan by O’Malley (D) to collect sales tax on some Internet purchases, would raise more than $300 million, covering about a third of the state’s $1 billion shortfall in the coming year, lawmakers said.
They would also amount to the first broad-based tax increases in Maryland since 2007, when O’Malley pushed through a tax package that increased the sales tax to 6 percent, from 5 percent, and rewrote the state’s income tax brackets.
O’Malley is one of at least a half-dozen Democratic governors this year pushing for tax increases. Lawmakers said that in private conversations Tuesday, O’Malley also confirmed that he would soon introduce a transportation package that will rely on raising taxes on gasoline to fund road, bridge and transit projects. He also plans to propose higher fees on most Maryland residents’ water and sewer bills to fund environmental cleanup efforts for the Chesapeake Bay. He is also backing a measure to promote offshore wind development that would increase state residents’ electric rates.
Democratic leaders in the General Assembly offered initial support for the governor’s budget, calling his push for new revenue the embodiment of what O’Malley and other Democratic leaders nationwide have labeled a “balanced approach” to government spending after nearly a half-decade of budget cutting during the downturn — and a stark contrast, they said, to the cuts-only approach advocated by Republicans on Capitol Hill.
County executives from both parties, however, sounded alarms, saying the budget could undermine the state’s economic recovery and burden already cash-strapped counties with unending commitments to rising teacher pension and retirement costs.
At the core of O’Malley’s budget is a plan to change an 85-year-old practice of using state tax dollars to pay the bulk of teacher pension costs.
As spending on education and teacher salaries has increased in recent years, Maryland’s cost to fund the pensions for some 105,000 current and retired educators has soared to nearly $1 billion annually.
Many powerful state lawmakers have for years pushed for counties — whose school boards set teacher salaries — to take on an equal share of the costs. But as a former Baltimore mayor, O’Malley long rejected the idea, saying it would impose too much of a burden on local governments.
But facing a mandate this year to halve the state’s projected $1 billion annual shortfall for much of the remainder of the decade, aides say O’Malley had few options but to begin to curtail the state’s education and health-care spending.