Taxpayers in Maryland and Virginia had better hold on to their wallets: The general assemblies on both sides of the Potomac River are back in business today, and lawmakers across the political spectrum are talking tax increases.
Lawmakers in both states are eyeing higher sales taxes, higher gasoline taxes, higher cigarette taxes and higher income-tax rates for the wealthiest taxpayers.
“Every year is a tough year, but this is a tougher year,” said Dee Hodges, president of the Maryland Taxpayers Association, a nonpartisan group opposed to tax increases.
She said the new taxes recently dumped on the budget table in Virginia, which so far dwarf the tax proposals in Maryland, don’t bode well.
“We are keenly aware of Virginia,” she said. “The two states are inextricably entwined.”
Last year, residents in both states dodged the tax-increase bullet in the face of huge budget shortfalls, although fees increased for a wide range of services, from getting a copy of a Maryland birth certificate to obtaining a Virginia driver’s license.
The pressure is mounting on the legislators and the governors to boost taxes, because budgets in both states already have been “cut to the bone,” as some lawmakers described last year’s meager spending increases. The fiscal crunch lingers with a projected $786 million shortfall in Maryland’s annual $22 billion budget and a $1 billion shortfall in Virginia’s two-year $59 billion budget.
“With all the pressure this year, the conventional wisdom [in Virginia] is that a cigarette tax will pass and possibly a gas tax,” said James T. Parmelee, president of Republicans United for Tax Relief.
Mr. Parmelee already was walking the corridors of power in Richmond yesterday, lobbying lawmakers to resist the tax-and-spend bug.
“It’s going to be a tough fight,” he said. “We are going to be successful, but we cannot let our guard down, because these guys really want the tax hikes.”
Still, there are signs of weakening within the Republican majority in the Virginia General Assembly, even as the state’s Republican Party remains staunchly opposed to raising taxes.
“As the national economy continues to show these promising signs of recovery, now would be the worst possible time to raise taxes in Virginia,” said Kate Obenshain Griffin, chairman of the Republican Party of Virginia.
“The improvement in our national economy is a direct result of President Bush’s tax cuts, and with a massive tax increase [in Virginia], we run the risk of stifling our own recovery at its emergent stages,” she said.
In Maryland, Gov. Robert L. Ehrlich Jr., a Republican, has vowed to veto most new taxes, but his party’s minority in the House and Senate makes a veto-proof two-thirds majority vote to raise taxes a real possibility.
Attempting to avoid tax increases, Mr. Ehrlich has retracted his promise to repeal last year’s $165 million increase in the state property tax, from 8.4 cents to 13.2 cents per $100 of assessed value.
He also plans to cut the price of an expensive school-reform program, known as the Thornton Plan, which is responsible for most of the projected budget shortfall in the upcoming fiscal year.
Sources familiar with the plan told the Baltimore Sun on Monday that Mr. Ehrlich will withhold about $45 million that larger school districts, such as Montgomery County and Baltimore city, had expected to get.
Like a rerun of last year’s legislative session, Mr. Ehrlich is pursuing legalized slot-machine gambling at horse tracks to close the budget gap, and House Speaker Michael E. Busch is pulling for a 1 percentage point increase to the 5 percent sales tax. Last year, Mr. Busch killed the governor’s slots bill in committee, but the speaker couldn’t muster enough support to prevail on a sales-tax boost.
“The governor has said he will not increase taxes, and the speaker says that he will not support slots. What we have is a stalemate at this point,” said Isiah “Ike” Leggett, chairman of the Maryland Democratic Party.
He said the party doesn’t have a position on taxes. “Taxes are not something that people are welcoming,” he said. “I think people are looking for mixed strategy, and that is not what we have right now.”
Other tax proposals in Annapolis include Mr. Ehrlich’s plan for a $2.50 surcharge on sewer bills and a plan by Delegate Sheila Hixson, Montgomery Democrat, to increase corporate taxes and add a higher tax bracket for the state’s wealthiest taxpayers. Members of both parties also are considering a higher gasoline tax and higher fees for titling and registering automobiles to fund transportation projects.
However, some top Democrats balked at higher taxes and backed Mr. Ehrlich’s plan.
“There won’t be any new taxes this session,” said Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, adding that his budget bill will mirror the governor’s and not include the sales-tax increase anticipated from the House.
“A sales tax is very regressive,” said Mr. Currie, Prince George’s Democrat. “So I would have some difficulty voting for an increase in sales tax. As far as a personal income tax, I would take a look at it.”
Meanwhile in Virginia, Gov. Mark Warner has proposed raising $500 million a year by increasing the 4.5 percent sales tax to 5.5 percent and upping the cigarette tax by 22.5 cents, from the nation’s lowest cigarette tax of 2.5 cents per pack to 25 cents and allowing an additional local tax of as much as 50 cents per pack.
Mr. Warner, a Democrat, also wants to create a new income-tax bracket that imposes a 6.25 percent tax on those earning more than $100,000 a year. Currently, all Virginia taxpayers pay an income tax of 5.75 percent.
Senate Finance Committee Chairman John H. Chichester on Monday upped the ante, proposing $2.5 billion a year in new taxes. Like Mr. Warner’s proposal, Mr. Chichester’s plan would raise the sales tax by from 4.5 percent to 5.5 percent.
Unlike Mr. Warner’s proposal, Mr. Chichester’s plan would increase the cigarette tax to 35 cents and the gasoline tax by 2.5 cents per gallon, from 17.5 cents to 20 cents.
Mr. Chichester, Stafford Republican, also wants to increase the income tax for the state’s richest taxpayers, placing a 6.25 percent tax on incomes from $100,000 to $150,000 a year and a 6.5 percent tax on incomes of more than $150,000 a year.
Republican lawmakers, especially in the House, blasted both tax plans.
House Republican Leader H. Morgan Griffith said he doesn’t think a sales-tax increase would make it through the conservative House.
“But we’ll look at it. [Mr. Chichester] put a lot of ideas on the table for us to look at,” said Mr. Griffith, of Salem.
Senators were more hopeful. “While I can’t cite any specifics, I sense a moderation from some of the antitax folks,” said Frederick M. Quayle, Chesapeake Republican.
“I may be dreaming, but I don’t hear quite as much of it quite as loudly as I have in the past,” he said. “And if anyone takes the time to sit down and look at the figures, they’ve got to realize we have to do something.”
• Christina Bellantoni and Robert Redding Jr. contributed to this article, which is based in part on wire service reports.
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