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How Big Is O'Malley's Proposal, Really? Depends on Who's Measuring

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Special Report: Special Session 2007: Budget Crisis

By Bernie Becker
Capital News Service
Friday, Sept. 28, 2007

ANNAPOLIS - Over the last 10 days, Gov. Martin O'Malley unveiled a sweeping budget plan during a whirlwind tour of the state, with stops from Glyndon to Gaithersburg and Ellicott City back to Annapolis.

With the full package finally out there, the governor says the state can erase its $1.7 billion shortfall even as "the vast majority of Marylanders" pay less in taxes.

But House Minority Leader Anthony O'Donnell said the governor is selling snake oil, proposing "a massive tax increase on the citizens of Maryland."

The two sides do agree on one point. Single smokers making more than $250,000 a year living in a rental property are really going to take it on the chin -- especially if they work out, frequent tanning salons and need a new car.

After that, it gets fuzzy.

The governor, for example, predicts that a family of four making $250,000 would get an $85 tax break while a single adult earning $125,000 would only pay $8 more per year.

Republicans question the accuracy of the governor's estimates, noting for example that he predicts someone making $125,000 a year would pay the same in additional sales taxes under his plan -- $212 a year -- as someone earning $750,000 a year.

There is a "reason the numbers don't make sense and he hasn't given much detail," said O'Donnell, a Calvert Republican. The governor "has to be vague" because he is perpetuating "a fraud . . . on the citizens of Maryland."

A spokeswoman for the governor said the sales tax figures were taken from Department of Legislative Services projections for a failed House bill last year that would have raised the sales tax by a penny.

But Senate President Thomas V. Mike Miller Jr., D-Calvert, has a simpler answer for the lack of detail: The bills proposed by O'Malley "haven't even been drafted yet," Miller said.

Miller calls the governor's plan "well thought-out and comprehensive," and said Republicans are "taking themselves out of the equation" on this debate by not being more pragmatic.

"They won't even support the increase" on the cigarette tax, he said.

The cigarette tax is just one element of O'Malley's plan.

He wants to double the tax, from $1 to $2 a pack, which would raise $255 million. Two-thirds of that would go to the shortfall and the rest to health care initiatives, under the governor's plan.

Other pieces of the plan include:

  • Changing the current flat income tax system to a graduated system that O'Malley said would result in a tax cut for 95 percent of taxpayers and no change for another 1.3 percent. But the increase on the top 3.7 percent of earners would net $163 million in new revenue.
  • Raising the sales tax increase from 5 cents to 6 cents per dollar and extending the tax to health clubs, tanning salons and other services, to raise $804 million.
  • Increasing the vehicle titling tax from 5 percent to 6 percent, letting the state's gas tax rise with construction costs and boosting corporate income tax from 7 percent to 8 percent. Combined, those moves would generate most of the $400 million in new revenue that would be dedicated to state transportation fund and higher education.
  • Closing loopholes that let corporations to avoid paying taxes on real estate transfers and on profits made in Maryland. The plan will net $94 million in new taxes, about $40 million of which would go toward the deficit.
  • Approving slot machines along the lines of a 2005 House bill that called for 9,500 machines. The governor predicted slots would raise about $27 million in the next year and as much as $550 million by 2012, the bulk of which would be dedicated to education.

O'Malley's package also includes tax breaks and spending cuts.

He called for doubling the income tax exemption for those 65 and older, from $1,000 to $2,000, and making a $50 sales tax rebate available to offset the increase for lower-income households. His plan would cut the state's portion of the property tax 3 cents per $100 of assessed value.

The governor has also made more than $400 million in spending cuts and saved another $300 million by freezing some portions of the Thornton education plan and phasing in others.

In all, the cuts and new taxes would net approximately $2 billion for the next fiscal year.

But the true impact of the package on Maryland residents will not be known until the General Assembly convenes next, most likely in a special session this fall.

O'Donnell said that whenever lawmakers meet, they should focus on spending, not on taxes. The state has a spending problem, not a revenue problem, he said.

"This whole thing is very odious," O'Donnell said.

But Miller said a full "three-legged stool" of spending cuts, increased revenue and slots are going to be needed to erase the shortfall. And he said the governor's plan has one of the hallmarks of a true compromise.

"There's something there everyone can like," he said. "And there's something there for everyone to dislike."

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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