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House Wrangles Over Proposed $1.4 Billion Tax Plan

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Special Report: Special Session 2007: Budget Crisis

By Rick Docksai and Kenneth R. Fletcher
Capital News Service
Saturday, Nov. 10, 2007

ANNAPOLIS - A House committee Saturday approved an overhaul of Maryland's tax structure that would bring in $1.4 billion in fiscal 2009, essentially mirroring the plan put forth by Gov. Martin O'Malley.

The Ways and Means Committee approved a bill late Saturday afternoon and the full House began debating it at 7 p.m., when it faced strong opposition from Republican lawmakers, who said they did not have time to properly review the hurriedly drafted bill.

"This is the biggest income tax increase in the history of the state and we have no idea how it's going to affect our constituents," Delegate Susan Krebs, R-Carroll, told the committee.

Republicans came to the floor armed with dozens of amendments to the tax bills, but they were being methodically shot down by the Democratic majority as of late Saturday.

The House rejected a motion to suspend the session until Monday and planned to deliberate late into the night on the budget package, which is needed to close a $1.7 billion shortfall in the current budget.

The House plan would increase Maryland's sales tax from the current 5 cents to 6 cents per dollar, a move that would raise an additional $720 million in fiscal 2009. But the House committee opted not to expand the sales tax to services, as proposed by the governor and Senate.

Under the committee's plan, corporate income tax would increase to 8.75 percent, a higher rate than O'Malley's plan. The House kept language to close corporate tax loopholes, which the Senate opposed.

The personal income tax for Maryland's top earners would go up to 5.75 percent, increasing revenues by $165 million.

Other taxes under consideration include a doubling of the tobacco tax from $1 to $2 a pack, as well as higher hotel and vehicle excise taxes. The House would set aside money for the Transportation Trust Fund and for Chesapeake Bay restoration.

Saturday's floor session followed a day of closed-door meetings and negotiations as House leaders tried to craft a plan that could pass, with the full House session pushed back repeatedly, from 1 p.m. to 3 p.m. to 7 p.m., as talks continued.

After a morning of caucus deliberations, in which Gov. Martin O'Malley appeared to urge lawmakers to come to agreement, the Ways and Means Committee presented a dramatically stripped-down "Plan B" that would be voted on if consensus could not be found.

Plan B rejected most of the O'Malley taxes. It would have eliminated increases in the sales tax, hotel tax and titling fees. Instead it only proposed increasing the income tax and requiring combined reporting.

It would have raised about $800 million, requiring the House Appropriations Committee to make an additional $300 million in cuts when it convenes Monday.

The Appropriations Committee is still scheduled to meet Monday morning to consider budget cuts that would make up the remainder of the shortfall.

"This is an attempt to get to 71 votes" needed to pass a bill, said Majority Leader Kumar Barve, D-Montgomery, after presenting Plan B.

"If we don't get the revenues, we'll have to take the cuts. That's the reality," Appropriations Chair Norm Conway, D-Wicomico told the committee.

Following more negotiations, including a closed-door meeting of the Democratic caucus and House Speaker Michael Busch, D- Anne Arundel, the committee met about 6 p.m. and quickly passed the higher-revenue bills with only minor amendments. Plan B was forgotten.

The committee ultimately rejected a proposal to extend sales tax to repair and parking services and it approved raising hotel room tax from the current 5 percent to 7.5 percent -- lower than the 10 percent the committee had proposed Friday.

The committee also removed a fund for higher education, which the committee said could be taken up in the regular session.

"This has been a horrible process," said Minority Leader Anthony O'Donnell, R-Calvert. "Major revisions have been floated around all day long, and the minority has not been allowed to be part of that."

O'Donnell complained that House Democrats were just trying to tire the public into accepting the bill.

If the House accepts the bills, it will set up a showdown with the Senate, which gave final approval Friday to a tax package that was more conservative than what the governor proposed or the Ways and Means Committee approved.

The Senate plan would raise about $1 billion in new revenues.

The Senate bill passed by a single vote, and Senate President Thomas V. Mike Miller, D-Calvert, warned Friday that there would be little wiggle room for negotiations with the House.

That did not appear to be a concern Saturday for House members.

"We couldn't go as high as the governor wanted," said Ways and Means Chairwoman Sheila Hixson, D-Montgomery. "It's much more progressive than what the Senate did."

Supporters said the Legislature has to act.

"Nobody likes to see a tax increase," said Delegate Ann Doory, D-Baltimore. "Given our shortfalls, we've got to all make tough decisions."

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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