House Passes Income, Sales Tax Bills After Struggle

By John Wagner and Ovetta Wiggins
Washington Post Staff Writers
Sunday, November 11, 2007; C06

The Maryland House of Delegates passed two major tax bills early this morning that would together raise $1.4 billion a year to close a yawning budget shortfall and pay for transportation and health-care priorities.

The Democratic-led House voted 82 to 55 for one bill that would overhaul the state's income-tax brackets. The vote was 80 to 56 on a second bill that would raise the sales tax from 5 to 6 percent. Other provisions in the legislation would increase the corporate income, tobacco and vehicle titling taxes.

Together, the two bills would raise roughly the same revenue as a bill passed Friday by the Senate. But several differences between the two chambers' plans would need to be resolved for the special session initiated by Gov. Martin O'Malley (D) two weeks ago to come to a successful close.

House Majority Leader Kumar P. Barve (D-Montgomery) said the tax bills that were passed were "highly progressive" and would protect working-class families even as the measures helped close a budget shortfall of at least $1.5 billion next year and raise $460 million a year for transportation priorities.

Republicans blasted their Democratic colleagues for pushing "massive tax increases" through the chamber in a rushed process.

"This bill will do untold damage to the economy of the state of Maryland," said House Minority Whip Christopher B. Shank (R-Washington) as debate entered its fifth hour at 11 p.m.

The start of a rancorous late-night debate was delayed for several hours as Democratic House leaders struggled to round up votes needed to pass the bills.

Montgomery County delegates, usually some of the most reliable for Democratic leaders in the House, were among the holdouts earlier in the day on a plan to overhaul the state's income tax brackets.

Although most Montgomery residents would pay lower income taxes, many in the delegation continued to express concerns about the plan's effects on high-income earners.

House leaders ran into broader opposition with a proposal to apply the state sales tax to automobile repairs, which are exempt from the levy. That provision was deleted from the legislation, along with plans to tax several other exempt services.

A plan to double the state's hotel tax was also scaled back in an effort to win support. Delegates said they heard from several hotel owners concerned about their ability to compete for convention business with other states.

Barve told reporters that Democrats were "very short" of the votes needed for both bills when the day started.

House Speaker Michael E. Busch (D-Anne Arundel) attributed the six-hour delay in starting the session to the diversity of interests in the Democratic caucus. The party holds 104 of the chamber's 141 seats.

"I promised each and every one of them before they made a vote, we'd make sure we gave them all the information they need," Busch said.

O'Malley appeared yesterday morning at closed-door meetings of the Montgomery delegates and the Democratic caucus. The governor gave no indication of trouble as he emerged from the Democrats' meeting, telling reporters that it was "an honest talk about our future and the future we share."

On Friday, the Democrat-led Senate wrapped up its initial work on a revenue package introduced by O'Malley.

The Senate muscled through five bills in two days. Besides the tax bill, the Senate also passed two bills that would allow 15,000 slot machines at five locations if voters approve the measure in a referendum next November, eventually raising an estimated $650 million a year for the state.

And the chamber passed legislation to direct O'Malley to trim $515 million from next year's budget and to broaden access to health care, at an annual cost to the state of $250 million.

House leaders plan to consider similar legislation in coming days.

O'Malley's original income tax proposal would have provided a modest cut for most filers but increased what high-income residents pay by several thousand dollars a year.

Currently, most Marylanders pay the same top rate of 4.75 percent. O'Malley proposed adding two higher-income brackets of 6 and 6.5 percent. A legislative analysis estimated that 5.2 percent of Montgomery residents would have paid more under his plan.

In acknowledgment of Montgomery, which is home to more high-income earners than any other Maryland jurisdiction, the Senate rolled back the top rates to 5 and 5.5 percent.

The alternative passed by the House last night would add three brackets of 5.25, 5.5 and 5.75 percent. The plan would also expand the personal exemption available to most filers. Busch said about 7 percent of filers statewide would pay more than they do now.

Some in the 24-member Montgomery delegation continued to protest yesterday, saying that the top rates would be too onerous.

Del. Luiz R.S. Simmons (D-Montgomery) said there are concerns about higher rates, given Montgomery's proximity to Northern Virginia, where income taxes are lower.

"There are competitive issues here," Simmons said. "There are also legitimate issues of how much we pay and how much we receive in services from the state."

Del. Sheila E. Hixson (D-Montgomery), chairwoman of the Ways and Means Committee, said the Montgomery delegation was "somewhat divided" over what it wanted in exchange for its votes.

Some members, she said, were upset over the income tax brackets. Others were pushing for dedicated funding for education and transportation projects, and others were troubled by the sales tax increase.

The resistance to taxing auto repairs was the latest twist in one of the peskier issues in the special session.

O'Malley proposed extending the sales tax to a handful of exempt services, including health clubs, tanning salons and property management services. The Senate deleted those services from the bill and replaced them with computer services, video arcades and landscaping. Landscaping was dropped from the bill a few days later after a public outcry.

A House committee's decision to include a levy on auto repairs did not sit well with members of the Legislative Black Caucus.

Del. Herman L. Taylor II (D-Montgomery) said members of the caucus were concerned that lower-income residents would be particularly affected by a tax on car repairs.

"People in higher income brackets have newer cars with warranties, and when those warranties run out, they buy a new car," Taylor said. "People with older cars don't do that. They get repairs."

O'Malley told reporters that he had decided against including that service in his proposal because "we thought there were other things that were more luxury items."

Like the Senate, the House declined to include in its package an O'Malley proposal to roll the state sales tax back by 3 cents per $100 in assessed value. House leaders said they did not think it was a responsible thing to do, with the state facing a large budget shortfall.

O'Malley told reporters that he might resurrect his plan in future years when the state has its "fiscal house in order."