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Committee OKs Expanded Version of O'Malley Tax Plan

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The Tax Reform Act of 2007 (.pdf file)

The Budget Reconciliation Act (.pdf file)

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By Kenneth R. Fletcher
Capital News Service
Tuesday, Nov. 6, 2007

ANNAPOLIS - A Senate committee gave preliminary approval Tuesday to Gov. Martin O'Malley's plan to raise hundreds of millions through increased income, sales and other taxes, but not before changing it to raise even more than originally sought.

The Tax Reform Act of 2007 was passed 9-6 by the Senate Budget and Taxation Committee late Tuesday, and Senate President Thomas V. Mike Miller, D-Calvert, said he hoped to have a vote by the full Senate by Wednesday afternoon.

"It's an excellent product," said Sen. Ulysses Currie, D-Prince George's and chairman of the committee, after Tuesday's six-hour voting session. "It's the first time we've ever stepped up and addressed the deficit."

The Tax Reform Act and the separate Budget Reconciliation Act, which passed 14-1, are part of the governor's plan to close Maryland's $1.7 billion budget shortfall.

The governor's original tax bill was expected to raise about $500 million in the first half of 2008 and $1.1 billion starting in fiscal 2009, but a string of amendments by the committee would make that revenue higher.

Instead of extending the sales tax to fitness clubs, tanning salons and other services, which would have brought in $60 million a year, the committee voted to tax landscaping and computer services, which should bring in $300 million a year in sales taxes.

The committee also changed the governor's income tax plan. O'Malley would have set the tax rate for people making more than $500,000 at 6.5 percent, but the committee lowered the top rate to 5.5 percent. Those making less than $150,000 will pay 4.75 percent under the committee's plan, while O'Malley had proposed rates as low as 3 percent for those making between $2,001 and $4,000.

But the committee stepped back from the governor's plan to require combined reporting of profits, which is aimed at keeping multistate corporations from protecting profits from being taxed. The committee instead voted to establish a business tax reform commission to review the state's corporate tax structure.

In a nod to the "Green Fund" bill in the House, which would raise funds for Chesapeake Bay restoration by taxing impervious surfaces, the Senate committee voted to set aside about $50 million from Program Open Space funds and a portion of tax revenue.

Other revenue was set aside for a Transportation Trust Fund to address the state's crisis in transportation funding.

The Budget Reconciliation Act would change the way inflation is indexed for education aid, decreasing the amount of state funding for local school systems. It also changes the tax-exemption for electricity-generating equipment.

The original bill was estimated to save the state more than $320 million a year. That number will change when amendments are tallied, but hard numbers were difficult to come by Tuesday evening.

The committee votes came at a hurried pace, as aides ran off to copy bill amendments moments before they were debated. Some lawmakers complained they did not have enough time to properly study the dozens of last-minute changes to the bills.

"This is very complex and I'm not sure many of us fully understand this," said Sen. J. Lowell Stoltzfus, R-Somerset. "This is a lot of material here."

Sen. David Brinkley, R-Frederick, said that being asked to vote immediately after hearing of an amendment was not fair. "If I saw this 15 minutes before voting I might have a lot more to say," he said.

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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