By John Wagner
Washington Post Staff Writer
Tuesday, April 1, 2008; B01

The governor and legislative leaders have corralled enough votes to send a bill to the full Maryland Senate that would repeal the state's new tax on computer services and offset part of the lost revenue with a surcharge on the income of millionaires, a key lawmaker said yesterday.

The apparent breakthrough, with a week remaining in the legislative session, came amid intense lobbying by Gov. Martin O'Malley (D) and a flood of phone calls yesterday from representatives of the information technology industry to wavering members of the Senate Budget and Taxation Committee.

"I feel fairly certain a bill will come out of our committee," said Sen. Ulysses Currie (D-Prince George's), chairman of the panel, which could vote on the legislation as early as today.

The plan, modeled on a proposal by O'Malley, would also require cuts in transportation funding and state agencies to offset the more than $200 million a year that legislative analysts expect the computer services tax to generate.

Aides to O'Malley and lawmakers cautioned that the majority on the budget committee remains fragile and that a vote by the full Senate could be close. They also said alternative scenarios for a repeal are still being explored. If a repeal of the computer services tax clears the Senate, the House is widely expected to follow suit.

The 6 percent "tech tax," which is set to take effect July 1, would apply to a wide range of services, including custom software design and data processing. It was passed during a special session in the fall in which the Democrat-led General Assembly raised taxes by $1.4 billion a year in a bid to fix the state's long-term finances.

Momentum to repeal the computer services tax has grown considerably in recent weeks, but some Democrats have warned of the political consequences of embracing another tax increase, particularly given the sluggish economy.

"Opponents of this tax are not going to characterize it as a millionaires tax," said Sen. Richard S. Madaleno Jr. (D-Montgomery), a member of the budget committee. "It's going to be just another tax increase. . . . This is just more fodder for conservative talk radio."

The surcharge on millionaires suggested by O'Malley would directly affect an estimated 0.2 percent of income tax filers in the state, a group characterized as "the wealthiest of wealthy people" by Senate President Thomas V. Mike Miller Jr. (D-Calvert). He said he might support the tax if it is assessed on a temporary basis, ending after three years.

Several members of the budget panel have wrestled over whether to support another tax increase as part of the solution to repealing the computer services tax.

In an interview Friday, Sen. Robert A. Zirkin (D-Baltimore County), a budget committee member whom colleagues identified as a swing vote, said that he would strongly prefer to compensate for the $200 million in revenue loss through budget cuts and that there was no need to adopt a millionaires tax.

"I think that in a vacuum, this tax wouldn't be as unpopular as others might be," Zirkin said of the proposed surcharge. "But we're not operating in a vacuum. We're operating after a special session in which a number of other taxes have been raised."

He said in an interview yesterday that he still plans to push his colleagues to cut as much as possible from the budget. But he left the door open to supporting the surcharge, saying: "If they can't get all the way with cuts, I will be amenable to that."

Zirkin said that he had several conversations with O'Malley about the issue over the weekend and yesterday and that his priority is getting the tech tax repealed.

"If we don't repeal it, we will entirely ruin an entire sector of our economy," he said, calling the tax "about as dumb an idea as I can think of."

Zirkin and Madaleno were among the lawmakers targeted in an e-mail circulated yesterday by the Maryland Computer Services Association, which was formed in response to the passage of the tech tax.

The e-mail included pictures of Zirkin and Madaleno and their office numbers and suggested scripts for people to read when they call.

"We need to make a MAJOR IMPRESSION on these people today," the e-mail said. "Delivering a head-turning volume of calls. And melting their telephones into puddles of smoking plastic. Please help!"

An aide to Madaleno said the office was inundated with calls yesterday.

Madaleno and Zirkin represent counties that would be disproportionately affected by the imposition of a millionaires tax.

Under O'Malley's plan, the state would apply a new 6.25 percent rate to taxable income in excess of $1 million. The state's top marginal rate is 5.5 percent.

In 2005, 6,150 of the state's 2.6 million filers reported personal taxable income of more than $1 million, according to the comptroller's office. Of those, 2,535, or 41 percent, resided in Montgomery. The second highest total was in Baltimore County, which had 1,011 filers reporting more than $1 million.

Zirkin said those numbers had nothing to do with his stance on the issue.

Madaleno echoed arguments by other Montgomery officials, who have suggested that a higher income tax rate could prompt people who are creating jobs in the county to move. He suggested making cuts in transportation funding to repeal the tech tax.

Madaleno also questioned the political consequences in his county of the governor's support for the millionaires tax.

"I think it could be damaging to O'Malley in the part of the state where he probably remains the strongest," Madaleno said.

Polls taken after the special session have shown O'Malley's statewide job approval rating at less than 40 percent.

O'Malley spokesman Rick Abbruzzese said the governor was continuing to meet with lawmakers "to come to a solution" on the computer services tax repeal. The tax was not included in the revenue package O'Malley proposed during the special session. It was added by the Senate.

"He supports a more progressive income tax, as opposed to making additional cuts that will have a negative impact on programs and services that the citizens of Maryland depend on," Abbruzzese said.

Senate Minority Leader David R. Brinkley (R-Frederick) said he does not anticipate any Republican support for a repeal of the computer services tax that includes the imposition of another tax. Republicans hold 14 of the Senate's 47 seats.

"We don't believe that's necessary," Brinkley said. "There's an alternative, which is to cut back on the spending increases."