Panel Supports Most of O'Malley's Budget Plan

Gov. Martin O'Malley addresses the legislature Monday as Senate President Thomas V. Mike Miller Jr. listens.
Gov. Martin O'Malley addresses the legislature Monday as Senate President Thomas V. Mike Miller Jr. listens. (By Gail Burton -- Associated Press)
By John Wagner and Philip Rucker
Washington Post Staff Writers
Wednesday, November 7, 2007

A Senate budget panel yesterday scaled back Maryland Gov. Martin O'Malley's plan to raise taxes for high-income earners and suggested applying the state sales tax to several services that were not in his proposal.

The actions by the Senate Budget and Taxation Committee occurred during an afternoon of deliberations that ended when the panel signed off on most components of the governor's deficit-reduction package, but only after making several significant changes.

The committee also approved the governor's plan, largely intact, to hold a public referendum next year on legalizing slot machine gambling at five locations to generate revenue and subsidize the state's troubled horse-racing industry.

In a statement last night, O'Malley (D) praised the panel's work, which could lead to votes by the full Senate today, saying that it represented movement "toward consensus on a long-term solution" to a budget shortfall of at least $1.5 billion. Lawmakers are meeting in a special session called by O'Malley to address the budget problem.

In a nod to Montgomery County lawmakers, the panel reduced O'Malley's proposed new top income tax rate from 6.5 to 5.5 percent. Lawmakers in Montgomery, which is home to more high-income earners than any other jurisdiction in Maryland, had said that the income tax plan proposed by O'Malley could hurt the county's economic interests.

The panel endorsed O'Malley's plan to raise the state sales tax from 5 to 6 percent but rewrote his proposal to apply the levy to several services that are currently exempt. Under the amended plan, Maryland would start taxing computer services, landscaping work and arcades.

Legislative analysts said those services would bring in significantly more revenue than the ones O'Malley has proposed to tax, which include health clubs, tanning and massage parlors, and property management firms. They were cut from the Senate plan.

Those changes were harshly criticized by Republicans, who alleged that the affected businesses had no chance for input.

"They don't even know they're in this bill," said Sen. E.J. Pipkin (R-Queen Anne's). "That's wrong. Democracy is about letting the public have transparency and participating, neither of which took place today."

The Senate panel also directed O'Malley to cut the budget more deeply than he has pledged to, in part by eliminating 750 vacant state jobs. The committee eliminated the governor's proposed property tax reduction and tweaked his plan to curb the growth of education spending in coming years.

And the committee endorsed the governor's plans to raise the corporate income tax, to double the tobacco tax and to raise vehicle titling fees.

But the panel balked at his plan to periodically raise the gas tax to reflect increases in road and transit construction costs. As an alternative, lawmakers earmarked a portion of the state sales tax to pay for transportation priorities.

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