Bonanza Lets Md. Speed Up Tax Cut
By Daniel LeDuc
On a busy day in Annapolis, state lawmakers also dealt a final blow to a proposal to give Prince George's relief from state rules restricting how to spend school construction money. The relief was a critical part of a recent agreement to settle the county's 25-year-old school desegregation case, and the legislature's move left the future of that agreement in question. [See story, Page D1.] Several contentious issues remained unresolved as the General Assembly raced to complete work before it adjourns Monday night. But lawmakers took a moment to savor the new round of tax cuts, which are greater than they had anticipated when the General Assembly session began in January. Now incumbent legislators and Gov. Parris N. Glendening (D) can face voters this fall with a host of popular new spending programs and extra tax reduction to boot.
Last year, the General Assembly voted to reduce personal income taxes by 10 percent over five years, at 2 percent a year. Yesterday, legislators agreed to make this year's reduction 5 percent, accelerating the pace of the 1997 plan. A typical family of four earning $40,000 would save about $87 in taxes this year, legislative analysts said.
Lawmakers also agreed to expand the earned-income tax credit for low-income people and to provide additional property tax relief to the elderly and disabled.
The tax plan still faces final votes in both chambers, but the presiding officers said they saw no significant obstacles.
"I think it's a very good package that both the House and Senate have strongly invested in," said House Speaker Casper R. Taylor Jr. (D-Allegany). Delegates and senators were far apart when tax cut negotiations began weeks ago. Taylor praised Glendening for bringing the two sides together in recent weeks.
In other action in the State House yesterday:
The House rejected a Republican-led effort to limit the attorney's fees of Peter G. Angelos, the Baltimore lawyer handling the state's lawsuit against tobacco companies. Some officials say the state might collect about $4 billion from cigarette makers in compensation for state Medicaid payments for smoking-related illnesses. Angelos now stands to collect 25 percent of any such judgment, but his fee will be addressed by a House-Senate conference committee on the tobacco matter.
The Senate has already voted to cut Angelos's fees in half. The two chambers also remain at odds on how far to go in changing state law to make it easier for Maryland to pursue its lawsuit seeking damages from tobacco manufacturers.
House and Senate conferees continued difficult negotiations on means to combat the toxic microbe Pfiesteria piscicida. Environmentalists, who back a Senate version of the bill, want new limits on farm runoff, which is suspected of fueling toxic blooms in state waterways. The poultry industry, which supports the House version, wants to delay new restrictions.
Legislators agreed to expand state health insurance to 60,000 poor children and pregnant women. The measure would authorize Medicaid coverage to families earning up to twice the federal poverty line. For a family of four, that's $32,000 a year.
Funding for popular programs such as the children's health initiative was part of the overall $16.5 billion budget for the fiscal year that begins July 1. The General Assembly approved the budget earlier this week.
New programs are possible for the same reasons lawmakers were able to cut taxes: The state economy is roaring at a pace unseen in a decade, according to economists. New revenue estimates in March showed that the state had at least $143 million in unanticipated revenue for the new budget.
The tax package agreed to yesterday calls for increasing the reduction in the income tax to 5 percent this year and an additional 1 percent next year. That 6 percent reduction would put lawmakers well ahead of their five-year schedule for cutting income taxes by a total of 10 percent.
Those cuts account for the bulk of the $190 million tax-reduction package.
"The acceleration of the 10 percent personal income tax cut . . . will return much of the state's substantial budget surplus to all of our citizens," Glendening said in a statement in which he also praised legislators.
Under the plan, the state's top tax rate would drop this year to 4.875 percent, from 5 percent a year ago. The value of personal exemptions would increase to $1,750, up from $1,200 a year ago.
The agreement also calls for a refund to low-income people who qualify for an earned-income tax credit. Currently, those people do not receive a refund if their federal credit exceeds their state tax bill. For a qualified person who makes $8,000 to $9,000 a year, the change could mean an annual state refund of more than $75.
The tax package also will expand an existing property tax break for low-income elderly and disabled people. Qualified homeowners already get a cut in their property taxes in a program that dates from 1975; eligibility is based on the homeowner's property tax bill and income. The tax negotiators were still working on precise details of how to expand that eligibility.
"Basically there's something for everybody," said Sen. Barbara A. Hoffman (D-Baltimore), chairman of the Budget and Taxation Committee.
Staff writers Charles Babington, Peter S. Goodman and Robert E. Pierre contributed to this report.
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