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Md. Lawmakers Approve Tax Package

Both tax bills squeaked through the Senate by narrow margins, with Republicans mounting a filibuster that took the Democrat-led chamber three votes to break.

Before convening last night, fiscal leaders from the House and Senate met informally to work through a few dozen differences between tax plans that had been passed by the two chambers.

Senate leaders insisted on raising the state's top income rate no higher than 5.5 percent from its current rate of 4.75 percent. O'Malley had proposed 6.5 percent, and the House plan included a top rate of 5.75 percent. The new top rate has been a major concern for leaders in Montgomery County, which is home to more high-end earners than any other Maryland jurisdiction.

House leaders acceded to the Senate on the issue, and senators agreed to several other components of the House income tax plan intended to make the levy more progressive. The House plan, for example, increases the personal exemption that can be claimed by lower- and middle-income taxpayers by as much as $800.

The small group of lawmakers also sought to resolve one of the peskiest issues of the session: whether to expand the sales tax to services that are currently exempt.

O'Malley proposed, and both chambers agreed, to raise the sales tax rate from 5 percent to 6 percent. O'Malley also proposed applying the tax to several exempt services, including health clubs, tanning salons and property management. Those services were changed multiple times in alternative proposals developed by both chambers.

The only service agreed to yesterday by House and Senate fiscal leaders was computer services -- largely because of the nearly $200 million a year in estimated revenue it could generate.

"We feel a little trapped because of the amount of money involved," said Sheila E. Hixson (D-Montgomery), chairman of the House Ways and Means Committee.

Computer services that would be subject to the tax include consulting and programming help, as well as software installation and hardware maintenance. Legislative analysts said at least nine other states tax computer services. The group of legislators agreed to revisit the issue in five years to determine what effects the tax has had.

The group also compromised on raising the corporate income tax from 7 percent to 8.25 percent. The House plan had increased the tax to 8.75 percent; the Senate plan had raised the rate to 8 percent.

The group agreed to drop a House plan to increase the tax on hotel stays from 5 percent to 7.5 percent. Sen. Ulysses Currie (D-Prince George's), chairman of the Senate Budget and Taxation Committee, said raising the tax would send a negative message to hotels planning to open at the National Harbor project in his county.

The legislature also passed the largest expansion of Medicaid in Maryland in years. Middle-class residents who cannot afford insurance also would be helped with state subsidies to small businesses that offer coverage to employees.

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