An Air Kiss to the Rich

Maryland senators water down an income tax reform.

MARYLAND's Senate has tinkered with Gov. Martin O'Malley's plan to overhaul the state's tax structure and eliminate an annual deficit of at least $1.5 billion. The overall effect of the Senate's modifications is to make a somewhat regressive plan even more so by shifting more taxes

onto the shoulders of lower- and middle-income earners. The House of Delegates should do better.

The irony of the Senate's action is that the impetus came mainly from Montgomery County officials, who are usually regarded as die-hard liberals. In this case, they acted on behalf of their richest constituents -- especially those clearing a cool half million dollars a year -- by flattening out the progressivity in Mr. O'Malley's original blueprint. So much for die-hard liberalism.

For 40 years, Marylanders have paid a flat state income tax of 4.75 percent on income above $3,000. Mr. O'Malley's program would have added two higher brackets -- 6 percent and 6.5 percent -- for the richest 5 percent of earners; almost three-quarters of the new revenue would have come from those making more than $500,000 annually. The Senate, nudged by Montgomery officials, cut the top bracket to 5.5 percent and rolled back what would have been a modest income tax cut for the state's middle-income earners under the governor's proposal.

This is odd. It is true that Montgomery, by dint of its size and widespread affluence, contains more multimillionaires than any other jurisdiction in the state. It is equally true that multimillionaires are a tiny percentage of each lawmaker's constituents. You'd never know it by listening to some of the county's politicians, who quake at the idea that a more progressive income tax might drive the richest residents, or prospective residents, into Fairfax County.

The Senate blew another air kiss to the deep-pocketed set by rejecting the governor's proposal to eliminate a major loophole through which corporations dodge Maryland taxes by artificially shifting profits to out-of-state subsidiaries. Thanks partly to this scam, more than half the largest companies doing business in the state pay no corporate income taxes whatsoever. But although 18 other states have closed this loophole, Maryland's Senate balked, referring the issue to a study that would only duplicate the voluminous research that's been done on the topic elsewhere.

The Senate's fiscal package would expand funding for health care and transportation; it would maintain ample spending on public and higher education while directing the governor to make $515 million in spending cuts on next year's general fund budget of about $15 billion. Crucially, it would restore a balanced budget as required by law. Still, we hope House Speaker Michael E. Busch makes good on his pledge to reinstate some of the progressive aspects to the governor's program so that wealthy individuals and corporations pay their fair share.

At that point, it will be up to the governor to start knocking heads, which so far he's been reluctant to do. At the moment, judging by the Senate plan's heavy dependence on a higher sales tax and legalizing slot-machine gambling, Maryland is tilting dangerously close to a soak-the-poor program, which would fly in the face of every principle the governor has rhetorically embraced as a candidate and in office. Mr. O'Malley has often spoken of finding legislative consensus and of avoiding unnecessary fights. That speaks of an admirable pragmatism. But the day may be drawing near for a necessary fight.