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Corporate Tax Hike to Fund Higher Ed Draws Student Cheers, Business Jeers

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Leaders on Both Sides of Aisle Take Aim at O'Malley, Special Session

Special Report: Special Session 2007

By Kenneth R. Fletcher and Andy Zieminski
Capital News Service
Wednesday, Oct. 31, 2007

ANNAPOLIS - College students and administrators rallied Wednesday with Gov. Martin O'Malley in support of legislation that would raise corporate taxes and dedicate funds to higher education and transportation.

"College education isn't just good for you," said Lt. Gov. Anthony Brown. "It's good for Maryland, good for the economy and good for civic life."

But at a legislative hearing immediately after the rally, business groups challenged the claim that increasing the corporate income tax would be good for the economy. They said it would drive businesses out of the state.

"In business, it's not rocket science to understand that a tax is just another cost," said Scott Harding of F.B. Harding Electrical Contractors in Rockville. "It impedes Maryland's ability to compete."

O'Malley's bill would raise corporate income tax from 7 percent to 8 percent starting in 2008 and would close loopholes that allow businesses to avoid taxes on some property transfers and on profits in other states.

The legislation designates half of the new, higher income tax revenues -- an estimated $56 million in fiscal 2009 -- to a higher education investment fund that would stabilize tuition, upgrade facilities and invest in workforce development.

A 40 percent tuition increase between 2003 and 2005 has pushed college education out of reach for many families, the governor's office said in a statement.

"We cannot become a great state unless the children of working-class families can afford to go to college here," O'Malley said to a cheering crowd of about 60 students and higher education officials.

University of Maryland Student Government Association President Andrew Friedson said the rising cost of tuition, including a 2003 mid-year tuition increase, is a top issue among students.

"The situation is really not fair to families and students," Friedson said. "If you don't know what you're budgeting for it makes things difficult."

But businesses said the bill's costs far outweigh any benefits.

"This bill does not provide meaningful support of higher education, and it does do meaningful damage to Maryland business," said Karen Syrylo, a taxation consultant with the Maryland Chamber of Commerce.

A corporate income tax increase would make Maryland less competitive with its two main regional rivals, Virginia and North Carolina, Syrylo told members of the House and Senate fiscal committees, meeting in joint session Wednesday afternoon.

Virginia's corporate income tax is 6 percent and North Carolina's is 6.9 percent, according to a report by legislative analysts, which added that other neighboring states have rates above 8 percent.

But supporters of the governor's plan said that funding higher education is crucial to a strong economy.

Maryland is the "wealthiest state in America because we have invested in . . . higher education for all of our people," O'Malley said.

At the rally, the governor reached out to ask Republicans to support higher education funding.

"We need our colleagues in the party of Lincoln to join with us in finding a consensus," O'Malley said, gesturing toward Republican legislators in the crowd.

Senate Minority Whip Allan Kittleman, R-Howard, said that higher education is a priority, but funds should be shifted from other sources to education instead of relying on business taxes.

"I'm not opposed to funding higher education, but I am opposed to increasing taxes," he said.

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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