- The Washington Times - Wednesday, January 18, 2012

Maryland Gov. Martin O'Malley proposed a state budget Wednesday that would increase tax payments for the top 20 percent of Maryland wage earners, prompting criticism that the move will further burden families in difficult economic times.

Mr. O'Malley, a Democrat, laid out a $35.9-billion spending plan that would pay for increased spending on infrastructure by raising several taxes and shifting some state costs to counties.

The budget calls for an increase in the state’s so-called “flush tax,” higher taxes on cigars and smokeless tobacco, and restrictions on income-tax deductions and exemptions that will cause the top 20 percent of earners to pay higher taxes.

“I don’t like doing this, and there are many unpleasant parts of this responsibility,” the governor said. “But to get us through this recession in advance of other states … there are difficult things that we need to ask of one another.”

Under the governor’s proposal, single residents making between $100,000 and $125,000 a year and couples making $150,000 to $175,000 would be allowed to deduct only $1,200 from their taxable income for each personal exemption, rather than the standard $2,400.

Personal exemptions would be eliminated entirely for single residents earning more than $125,000 and couples earning more than $175,000.

Mr. O'Malley’s budget would also cap itemized deductions for the state’s highest earners, allowing those who make more than $100,000 to claim deductions of no more than 90 percent of their income and those making more than $200,000 to claim no more than 80 percent.

To explain the changes’ effect, the governor said a family of four with two wage-earners would pay an extra $191 in annual income taxes.

While the restrictions are expected to bring the state $182 million in new revenues next year, Republicans lashed out at the governor for raising taxes while many families struggle to make ends meet.

“Forget millionaires; this budget takes aim at thousandaires,” said House Minority Leader Anthony J. O’Donnell, Calvert Republican. “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.”

Mr. O'Malley proposed the state more than quadruple its tax on non-cigarette tobacco products from 15 percent to 66 percent, and double its revenue from the flush tax, which funds sewage-treatment facilities. However, he discouraged doubling the $30-a-year flush fee, saying he will develop an approach in the coming weeks that would more aggressively tax larger homes that use more water, compared with smaller homes that don’t.

The governor declined to say whether he will propose raising the 23.5 cents a gallon gas tax, adding that he could make a decision later this month.

Mr. O'Malley touted the budget as a bold step toward creating jobs and trimming the state’s $1.1 billion structural deficit, the difference between anticipated spending and revenues in future years.

He said increased spending on new schools, roads and other projects will create thousands of construction-related jobs and jump-start private business.

The budget includes $610 million in general-fund spending reductions, though it is 3 percent larger overall than last year’s $34.2 billion budget.

Those reductions include transferring $239 million in expenses to counties as part of Mr. O'Malley’s proposal to split teacher pension costs evenly among the state, its 23 counties and Baltimore.

He said cuts and revenue enhancements will help the state to trim $656 million from the structural deficit.

The Democrat-controlled General Assembly will use the budget as its starting point, then amend the plan and pass a final budget during this year’s 90-day session.

Democratic lawmakers appear poised to push for tax increases, but it remains unclear how close their final numbers will be to the governor’s.

Senate Budget and Taxation Committee Chairman Edward J. Kasemeyer said income-tax hikes are necessary and less regressive than taxes on gas, cigars and other items, which can equally or disproportionately affect poorer residents.

Mr. Kasemeyer, Baltimore County Democrat, declined to say whether he agrees with the exact terms of the governor’s proposal, but said higher earners should shoulder more of a load.

“Probably the fairest way is to go to upper-income individuals,” he said. “I think the point is that you can’t do it with cuts alone.”

Christopher B. Summers, president of the conservative-leaning Maryland Public Policy Institute, criticized the governor’s budget as a damaging tax-and-spend approach.

“It signals that Maryland is in fiscal dire straits here,” Mr. Summers said. “But by doing this, he continues to make Maryland less competitive economically and push more wealthy people out of the state.

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