O'Malley's Budget Compromise Sinking in Committee

By Annapolis Digest
Friday, March 28, 2008

A compromise floated by Gov. Martin O'Malley to allow for the repeal of Maryland's computer services tax is short of the votes needed to move it forward in the Senate, leaders of the chamber said yesterday.

O'Malley (D) suggested this week that lawmakers could compensate for the $200 million a year that would be lost in repealing the "tech tax" by imposing a surcharge on the income of millionaires, diverting $50 million from transportation projects and requiring additional budget cuts in state agencies.

Sen. Ulysses Currie (D-Prince George's), chairman of the Budget and Taxation Committee, said "it doesn't look good" when asked about the prospects of a package like that winning approval from his panel.

"The governor's going to have to get the votes," Senate President Thomas V. Mike Miller Jr. (D-Calvert) said, suggesting that lawmakers could instead make much deeper cuts to the budget to offset the lost revenue. "It's either going to be cut the budget by $200 million or the governor's compromise plan."

Momentum to repeal the computer services tax has grown considerably in recent weeks. The 6 percent levy, which was passed during last fall's special session, would apply to a range of services, including custom software design and data processing.

Business groups have said the tax, to take effect July 1, could drive information technology firms out of the state.

Currie ticked off budget cuts that senators could consider if they do not follow O'Malley's lead. Those include the remaining $25 million earmarked for a new fund to help clean up the Chesapeake Bay. Lawmakers have already agreed to cut the first contribution to the fund from $50 million to $25 million.

Currie said funding could also be scrapped for an expansion of subsidized health insurance that lawmakers passed during the special session, and he suggested senators could make additional cuts to public schools and higher education. Currie said he is planning to hold a work session Monday to explore options.

Asked at a news conference yesterday whether he has reached a deal with legislative leaders, O'Malley said: "No, I haven't, but we're working on it."

Miller said the situation is complicated by Montgomery County officials' aversion to the computer services tax as well as to two leading alternatives: imposing a millionaire's tax and cutting transportation spending.

"There's got to be some soul-searching in Montgomery County," Miller said.

Under a proposal floated by O'Malley, the top marginal income tax rate would rise from 5.5 to 6.25 percent on taxable income in excess of $1 million. That proposal could generate about $100 million a year for the state.

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