By John Wagner
Washington Post Staff Writer
Thursday, April 3, 2008
A Maryland Senate panel voted to impose a three-year surcharge on the income of millionaires yesterday as part of a broader plan to repeal the state's new tax on computer services.
The 10 to 5 vote sends the legislation, which has deeply divided Montgomery County lawmakers, to the full Senate. Senate President Thomas V. Mike Miller Jr. (D-Calvert) predicted that it will be passed in the waning days of the legislative session, which is scheduled to end Monday. House leaders said that they have not counted votes but that they think the House will probably also approve a repeal bill.
The legislation, modeled on a proposal by Gov. Martin O'Malley (D), would also require cuts in transportation funding and state agencies to offset the more than $200 million a year that legislative analysts have said the computer services tax would generate.
The most intense debate yesterday in the Senate Budget and Taxation Committee focused on the impact of the millionaires' tax, which would affect 0.2 percent of Maryland filers, most of whom live in Montgomery, the state's largest and wealthiest jurisdiction.
"This is a really, really hard vote for me," said Sen. Nancy J. King (D-Montgomery), the only one of her county's three members on the budget panel to vote for the plan.
King said she supported the bill because it was better than other repeal plans weighed by the committee, including one that called for deeper cuts in transportation projects. "Traffic is awful," King said.
As an alternative to the surcharge on millionaires, Sen. Richard S. Madaleno Jr. (D-Montgomery) proposed cutting $150 million a year in transportation projects. O'Malley's proposal for repealing the computer services tax, which is to take effect July 1, calls for curbing transportation spending by $50 million for each of the next five years. The millionaires' tax is expected to generate about $110 million a year.
Madaleno's proposal, which also drew the support of Sen. Rona E. Kramer (D-Montgomery), was rejected by the committee, 6 to 9.
Madaleno and Kramer told their colleagues that the surcharge on millionaires would prompt Montgomery residents to move to Virginia. The tax would also hurt small businesses that report their income on the personal income tax returns of their owners, they said.
"We can't afford to lose them, and we certainly can't afford not to have new people moving in," Kramer said.
Under the bill approved by the Senate panel, the state would apply a 6.25 percent rate on taxable income in excess of $1 million for the next three years. 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, lived in Montgomery. The second-highest total was in Baltimore County, which had 1,011 filers reporting more than $1 million.
Before the vote, Joseph C. Bryce, O'Malley's chief legislative officer, said that the computer services tax would have a "far more damaging" impact on businesses that the millionaires' tax.
"There are no perfect choices here," Bryce said.
The 6 percent "tech tax" would apply to a range of services, including custom software design and data processing. It was passed during a special session in the fall in which lawmakers raised taxes by $1.4 billion a year in an effort to fix the state's long-term finances.
Warren Deschenaux, the legislature's chief fiscal analyst, told senators that he thinks some people might move as a result of a millionaires' tax but suggested that "not an overwhelming number" would, because the proposed tax is temporary.
"There's considerable disruption that comes with relocating," Deschenaux said.
House Majority Leader Kumar P. Barve (D-Montgomery) said he thinks the odds of the House passing a repeal bill are "pretty good."
"There's a real visceral dislike of the computer tax, and I suspect a majority of members will support its repeal," Barve said.
Business groups that have been fighting for the repeal said they were heartened by yesterday's committee vote.
"We recognize these are difficult decisions, but we are optimistic," said Julie Coons, chief executive officer of the Tech Council of Maryland.
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