Senate Backs Faster Income Tax Reduction
By Daniel LeDuc
Awash in revenue that will provide $143 million in unanticipated money in the budget year that begins in July, senators moved to more than double the income tax reduction planned for this year, expand the state's earned-income tax credit and limit capital gains taxes for the wealthy.
The overall tax package, worth $189 million, is far greater than most people thought possible when the General Assembly session began in January and could help lawmakers in the Democrat-controlled legislature when they face reelection in the fall.
"We've come a long way from the beginning of the session," said Senate President Thomas V. Mike Miller Jr. (D-Prince George's). "We're not only lucky but grateful we can return this money to the taxpayers."
Such blissful talk may fade, however, when the House of Delegates begins to consider tax cuts next week. Delegates have spoken favorably of the major elements of the Senate tax package, but their leaders also are pushing for a reduction in the state property tax. Negotiations over any final tax-cut package probably will stretch into the session's waning days next month.
This is the second year in a row that the General Assembly is moving to adopt significant tax relief. Last year, lawmakers voted to cut the income tax by 10 percent, or 2 percent a year over five years.
But increased revenue estimates because of the booming economy have unleashed a new tax-cut fervor, giving Gov. Parris N. Glendening (D) and Democratic legislative leaders an opportunity to run for reelection on both increased tax reductions and increased spending for schools and other popular programs.
Marylanders are scheduled to receive a 2 percent income tax reduction in 1998, but in a preliminary action yesterday, the Senate moved to make it 5 percent instead. Under the Senate plan, the state's top tax rate would drop to 4.875 percent, down from 5 percent a year ago. The value of personal exemptions would increase to $1,750, up from $1,200 a year ago.
For a typical single person with an income of $25,000, the Senate plan would reduce taxes by an additional $50, legislative analysts said. For a family of four with an income of $40,000, the plan would cut taxes by $52.
Glendening has generally endorsed another round of tax cuts, emphasizing an acceleration of the income tax reduction. His budget secretary, Fred Puddester, said yesterday that the 1998 income tax cut in the Senate plan is larger than the governor contemplated.
Senate Republicans said the tax cuts, which face a final vote Friday, should be even greater. "We want to push a little more, but when push comes to shove, we're going to vote for it," said Senate Minority Leader Vernon Boozer (R-Baltimore County). On top of the income tax reductions, the Senate voted to provide refunds from the earned-income tax credit for poor people. Currently, those eligible for the federal earned-income tax credit don't receive any money back if the credit is greater than their state tax bills.
Senators voted to allow those people to receive refunds. It would work this way: If a person received an earned-income tax credit of $1,000, the taxpayer could take 10 percent of it and apply it to his state tax bill. If the state bill was $50, the taxpayer would receive a check for $50.
Senators also approved a cap on the capital gains tax for stocks and bonds. Profits above $1.3 million would not be taxed in what senators described as an effort to keep the most wealthy in Maryland from moving out of state. A half-dozen senators voted against the move.
The Senate package will head to the House after a final vote Friday. House Speaker Casper R. Taylor Jr. (D-Allegany) indicated that he favors an acceleration to the income tax cuts and that he likes the earned-income refund. He also said there might be a "good symbolic message" in the capital gains tax cap.
But delegates have voted to seek a cut in the state property tax and remain committed to that, he said. The tax is set annually by the Board of Public Works -- a panel made up of the governor, comptroller and treasurer. The House has passed a resolution asking the board to cut the state tax, currently 21 cents per $100 of assessed value, by 5 cents this year.
That one-time reduction is a more sensible way to return money to taxpayers, given that the new revenue driving the tax cut fervor may not be there in future years, Taylor said.
© Copyright 1998 The Washington Post Company