A special Maryland commission will recommend $800 million in tax increases, mostly by raising the sales tax a half-cent on the dollar, and aim the money at local governments and schools in the state's poorer areas.
The plan also includes raising income taxes for families who make more than $50,000, applying the sales tax to many more types of goods and services and imposing an annual personal property tax on automobiles and boats.
The Maryland Commission on State Taxes and Tax Structure plans to vote Nov. 28 on the proposal. The commission was appointed three years ago by Gov. William Donald Schaefer to recommend a comprehensive overhaul of the state's tax system, and Schaefer has said he supports most of the group's ideas. The proposal's fate in the General Assembly is far less certain.
R. Robert Linowes, chairman of the commission, confirmed outlines of the draft proposal in an interview yesterday. Many provisions would redistribute tax revenue from more affluent areas of Maryland, such as the Washington suburbs, to poorer cities and counties. Though most of the additional tax money would go into new or expanded programs for schools, roads and the environment, up to $180 million could be used to shore up current expenditures in the faltering state budget.
As first reported in the Baltimore Sun, the 17-member commission is leaning heavily toward proposals that would channel large portions of the additional tax money to Baltimore and a few poor counties to improve substandard schools.
But that scheme is sure to set up a battle with areas such as Montgomery County, where residents would be paying a disproportionate share of the increases.
Major elements of the draft proposals are:The state sales tax would climb from 5 cents on the dollar to 5.5 cents and would be expanded to cover such items as cigarettes and services such as automobile repairs and data processing. The sales tax, however, still would not apply to the services of doctors and lawyers. Together, the expansion and increase would raise an estimated $530 million, with about $350 million being sent to schools.
Individual income tax rates would be increased for higher-income Maryland residents, overall raising about $100 million more each year. Generally, rates would decrease for those with adjusted gross incomes of less than $50,000, and increase for those with incomes above that -- about one-third of Maryland families. Corporate taxes would be increased from 7 to 7.5 percent. A new 2 percent personal property tax would be levied each year on cars and boats, based on the blue book value. Proceeds from the car tax would go for roads and other transportation needs, while proceeds from the boat tax would be dedicated for the Chesapeake Bay cleanup. Local property would be reassessed annually at 100 percent of its value. Initially, the tax rates would have to be cut to ensure that counties did not receive a windfall.
Senate Budget and Taxation Committee Chairman Laurence Levitan (D-Montgomery) predicted that residents of his county would "go through the ceiling" because of recommendations for higher income and sales taxes. In addition, the recommendations include a limit on state assistance in paying for teacher retirement costs, the one area of state aid in which Montgomery receives a disproportionately high share.
"Montgomery County would get more money, yes it would," Levitan said, "but it pays in a hell of a lot to get back a relatively small amount."
Linowes, a Montgomery County lawyer, defended the commission's draft report and its emphasis on shifting the income tax burden more to families making $50,000 or more annually.
"Montgomery County will not pay more," Linowes said. "The highest earners will be paying more, no matter where they live. The point we've tried to make is that Maryland is a state. There is a need for the whole state to be economically healthy and be able to provide a decent quality of life for all its citizens."
The commission report, whose release has long been scheduled for after the Nov. 6 election, will hit Annapolis at a time when at least $322 million must be cut from the current budget to forestall a deficit. Given a bleak economic outlook, most officials think the next budget will show no growth unless new taxes are approved.
After the General Assembly convenes in January, the plan will also be competing for attention with separate attempts to increase the state's gasoline tax.
Administration officials expect Schaefer to make many or all of the Linowes Commission recommendations the centerpiece of his legislative agenda next year.
In the wake of elections this month, Schaefer said he did not detect an anti-tax mood among Maryland voters. "I think the people just said, 'I think you ought to be more responsive to what we want you to spend our money on.' "
But several legislative leaders heard a different message, and key lawmakers are suggesting that the Linowes recommendations be studied further.
"I think we just need to fine-tune the programs that we presently have," said House Speaker R. Clayton Mitchell Jr. (D-Kent).
Del. Tyras S. Athey (D-Anne Arundel), chairman of the House Ways and Means Committee, said he doubted that the General Assembly is in the mood to increase taxes.
"Some areas of the recommendations deal with just moving around, taking from the rich and giving to the poor," Athey said. "But that's not going to go over very well. I don't see any opportunity for any real big change during this session."
Levitan complained about many of the recommendations.
"This is a big departure -- a personal property tax, sales taxes, a major income tax change," Levitan said. "This is as bad a time as you could find to come out with a report recommending aggressive spending. The mood of the legislature is not going to be supportive of any kind of major tax increase."
Lt. Gov. Melvin A. Steinberg, who has served as Schaefer's go-between with the General Assembly, said it would be a "long shot" to get it approved in one year.
"Over the years, our tax system has become a quagmire of all kinds of varied taxes," Steinberg said. "It is going to be perhaps one of the most difficult enterprises we have ever been involved in."
Montgomery County, with its affluent population and growing strength in the General Assembly, will be critical to many of the tax commission recommendations.
County Executive-Elect Neal Potter said yesterday that some of the commission's ideas appear worthwhile.
"Expanding the base of the sales tax, I think is a good idea," Potter said. "And making income taxes more progressive in general is a sound idea. But a cap on the state aid for teacher pensions would have a serious impact on us. That's something we have to find a way around."
Montgomery gets more state money than other counties to pay for teacher retirement and Social Security payments, because its teachers are more highly paid and stay in the system longer. But Montgomery gets much less than other counties in state aid, most of which is based on need.
Potter said he had been told that Montgomery would get more state revenue overall in the first year after the tax package was approved. "I'm not sure how it works in succeeding years with the cap on the pensions," Potter said. "That might be a very serious loss for us."
Even more vehement was Sen. Howard A. Denis (R-Montgomery): "It's absolutely unpalatable and insulting, the same old elitists who want to raise taxes on the middle class without adjusting spending priorities."
Since October 1987, the commission headed by Linowes has studied Maryland's complex tax structure under a mandate to find ways of simplifying the system and making it more equitable. Given the wide disparity of wealth in the state, the latter may be the more difficult requirement.
"What we heard and found in hearings around the state were several major concerns," Linowes said yesterday. "Education was one, transportation was another and property taxes . . . and a desire to provide help to the less fortunate jurisdictions. We think we're addressing all of them."
"It would be desirable if the legislature were to act on, if not all, at least some of these recommendations as soon as possible," Linowes said. "It would be a major thrust, creating a very fair tax system, a much more progressive tax system."
In one sense, a main commission goal was to direct more state aid toward Baltimore and other poor jurisdictions. But Linowes said the commission heard a competing refrain from wealthier jurisdictions during public hearings this summer: "Don't take our means of revenue away from us. If you need additional revenue make it fair and equitable."
But any attempt to transfer wealth from richer to poorer counties runs into political realities in the General Assembly.
"I've been through three major funding increases to benefit poor subdivisions," said Del. Timothy F. Maloney (D-Prince George's), a member of the legislature since 1979. "I don't think anybody is convinced that major educational improvements resulted."
Even Del. Howard P. Rawlings (D-Baltimore) was not sanguine about the chances of quickly getting agreement to increase taxes, particularly to aid Baltimore schools.
"I think the last election sent a kind of clear message that in many parts of the state they wish spending to be curtailed," said Rawlings, a subcommittee chairman on the Appropriations Committee.
Del. Gene W. Counihan (D-Montgomery) said many counties and cities do need financial help from the state. "But I don't know that we have the answer on how to do it," Counihan added.