Maryland lawmakers yesterday gave preliminary approval to a $22.4 billion budget that would slice spending for higher education, reduce health care for the needy and raise more than $450 million in new fees and taxes targeted mainly at business.

With three days remaining in the 2003 session, legislative fiscal leaders are proposing to wipe out a record budget shortfall in part by raising the corporate income tax for three years, taxing HMO premiums and closing a variety of "loopholes" that allow some companies to avoid paying Maryland taxes. The budget proposal is expected to win final approval in the full House and Senate as soon as today.

Gov. Robert L. Ehrlich Jr. (R) has repeatedly warned the Democrats who control the General Assembly that he would reject new taxes on corporate income and health care premiums. His budget secretary, James "Chip" DiPaula, vowed yesterday that the governor would veto just that part of the tax package, a move that would open a $135 million hole in the budget.

Legislative budget leaders had considered a list of "doomsday" cuts that would have been triggered automatically by the governor's veto. They chose not to do so, saying Ehrlich should be forced to choose which services and programs to trim or eliminate as a result of his actions.

"We've cut this budget significantly. We've taken on that responsibility," said Senate budget committee chairman Ulysses Currie (D-Prince George's). "Why not allow him to take the heat?"

Ehrlich said he is ready to accept that challenge. After a veto, DiPaula said, Ehrlich is likely to identify reductions on his own rather than call lawmakers back into special session. Ehrlich's cuts could take immediate effect with approval from a three-member board that is made up of the governor, Treasurer Nancy K. Kopp (D) and Comptroller William Donald Schaefer (D).

Senate President Thomas V. Mike Miller Jr. (D-Prince George's) accused Ehrlich of kowtowing to wealthy Republicans who, he said, would rather see cuts for the needy than tax increases for businesses.

"He's going to get a lot of pressure from the silk-stocking law firms in Baltimore City to put the pressure on the middle-income people instead," Miller said. The tax package hits Ehrlich's "core Republican constituency. His donor base is going to be saying, 'We can do better.' "

Ehrlich, the state's first Republican governor in more than 30 years, argues that Marylanders elected him to restore "fiscal sanity" to the State House. Voters understand the need to spurn new taxes and shrink state government, he said, particularly after a House committee on Wednesday rejected his most significant revenue proposal: a plan to raise millions in cash for the state by legalizing slot machines.

"Obviously, the world changed two days ago," Ehrlich said.

The slots plan would have raised as much as $700 million for the state, Ehrlich said, though lawmakers could count on only about $15 million next year. Debate over the plan has dominated the session, which opened in January and is set to close at midnight Monday.

Even after a crushing defeat in committee, some administration officials refused to accept the demise of the slots plan. Over the past two days, a top Ehrlich aide has met with House Speaker Michael E. Busch (D-Anne Arundel) in hopes of reviving the measure.

Ehrlich confirmed that "feelers went out," but conceded that the bill's resurrection is doubtful.

Busch, for his part, said he has no interest in revisiting the issue. "They can send someone down to talk, but all the same questions are still there," he said.

Originally, Ehrlich had hoped to raise as much as $400 million from slots to help close a budget gap projected to top $2 billion by the summer of 2004. The budget plan he submitted in January relied heavily on slots and one-time accounting maneuvers to keep the state afloat.

But the slots bill fell apart. So lawmakers cut spending by an additional $200 million, slicing $18 million from higher education and phasing out a program to encourage higher salaries for teachers.

Lawmakers scaled back many of Ehrlich's priorities, eliminating funds to reform education at juvenile justice facilities. And they took a bite out of the Maryland Children's Health Insurance Program, reducing eligibility and requiring some families to pay a $37 monthly fee.

Lawmakers took aim at Ehrlich's proposal to funnel more state aid to faith-based organizations, adding a provision that prohibits the governor from pursuing that goal without explicit approval from the General Assembly.

Assembly members also had to come up with new sources of revenue. Ehrlich proposed property tax and corporate filing fee increases. Lawmakers packaged them in a "budget reconciliation" bill that contains additional fee increases.

They also crafted a separate $135 million tax bill that contains the items Ehrlich has vowed to veto: a 2 percent tax on HMO premiums; a temporary, 10-percent increase in the corporate income tax; and a provision that would close a loophole that allows Maryland companies to register in Delaware and avoid paying Maryland taxes.

Gov. Robert L. Ehrlich Jr. has said that he would likely veto new taxes in the budget and that he would be willing to identify reductions on his own to make up for the shortfall that would result.