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O'Malley budget plan would raise taxes for about 20 percent of Marylanders

$15.3 billion general fund proposal includes $311 million in new revenue

By BRIAN WITTE

Associated Press

2:16 PM EST, January 18, 2012

ANNAPOLIS

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About 20 percent of taxpayers will see smaller state income tax refunds, and Maryland will significantly shift how it pays for teacher pensions, under a budget proposal released by Gov. Martin O’Malley on Wednesday aimed at closing a $1.1 billion deficit.

The Democrat outlined a $15.3 billion general fund budget plan that includes about $311 million in new revenue. About $182 million will come from capping income tax deductions and phasing out exemptions. O’Malley said on average, a family of four with annual income of about $150,000 will pay $191 more.

“I don’t like doing this,” O’Malley said, noting 80 percent of residents would see no change. “There are many unpleasant aspects of this responsibility, but in order to get us through this recession in advance of other states, in order to protect the priorities of the people of our state and the futures of our children, there are difficult things we need to ask of one another in these difficult times, and this is one of them.”

The governor’s plan would cap income tax deductions at 90 percent for incomes above $100,000 and 80 percent for incomes above $200,000.

It also would reduce exemptions from $2,400 to $1,200 per person for singles who make between $100,000 and $125,000 and couples who make between $150,000 and $175,000. Exemptions would be eliminated for singles who make more than $125,000 and couples with incomes above $175,000.

Republicans quickly criticized the governor’s plan, which must be approved by the Democrat-controlled General Assembly by the end of the legislation session in April, calling it a runaway tax-and-spend plan at the expense of people who aren’t even wealthy.

“The governor is balancing the budget on the backs of the middle class and small businesses at a time when we should be looking for ways to make them thrive,” said Delegate Anthony O’Donnell, R-Calvert, the House minority leader.

About $19 million will come from aligning the state’s cigarette tax with other tobacco products. Tax on cigars and smokeless tobacco is 15 percent of wholesale, which was comparable to the 36 cents per pack cigarette tax in 1999. The governor’s proposal would make it 66 percent of wholesale, which would make it comparable to the present $2 per pack cigarette tax.

The proposal also would require online sellers to begin collecting sales tax, which the governor projects would raise about $19 million, but there are questions about enforcement.

It also includes about $610 million in general fund savings. The biggest involves about $239 million the state will save by splitting teacher pension costs with counties, a change that has been debated for years.

O’Malley said he has become convinced it’s better to share the funding responsibility, since counties negotiate teacher contracts.

“Another way of expressing that is —  if as contracts are negotiated — if you’re not covering much of the cost of pension benefits, you haven’t the incentive at the negotiating table to keep them within the leaps and bounds of the perimeters of fiscal responsibility,” O’Malley said.

Sen. E.J. Pipkin, R-Cecil, while criticizing the tax proposals, said he thought the proposal on sharing teacher pension costs was good.

“The current system is the equivalent of a teenager with a credit card that’s paid by their parents, and the bill continues to grow wildly,” Pipkin, the Senate minority leader who has supported a shift in the past, said.

Sen. Edward Kasemeyer, D-Baltimore County, said he expected the governor’s overall budget plan to go through “significant tweaking” in the General Assembly.

“There’s a lot of parts and a lot of issues that are very intertwined, and it will be difficult to reach consensus so it’ll require a lot of negotiation, I believe,” Kasemeyer said.

O’Malley has been talking about a potential gas tax increase to help pay for transportation infrastructure, but he did not elaborate on what it might be during his budget presentation with reporters on Wednesday. Maryland’s 23.5-cent gas tax has not been raised since 1992.

O’Malley also said he is not proposing a tripling of the state’s “flush tax,” which is a $30 annual charge on sewer bills to upgrade wastewater treatment facilities to reduce pollution in the Chesapeake Bay. Instead, he wants to adjust the current fee to raise more money by taking consumption into account.

“In other words, some people might actually even see their monthly bill go down, and then we’ll kind of peg it by the amount of water consumed in order to increase the enhancement there, which will also provide a consumption incentive to reduce consumption,” O’Malley said.

O’Malley also outlined a robust $3.6 billion capital budget that increases state borrowing in hopes of spurring job growth. The governor estimated this year’s capital budget would create 51,000 construction jobs.

“Job creation is our number one priority, and this budget is the best budget in terms of new job creation and supporting jobs that we have been able to put forward since the recession hit,” O’Malley said.

The General Assembly will must approve the budget before the legislative session adjourns in April. The state’s overall budget, including federal funds, is about $35.9 billion. The state has about $673 million in its rainy day fund.

Capital budget highlights
The governor’s proposed $3.6 billion capital budget for fiscal 2013 includes: