After voting this week to raise income tax rates on the state’s highest earners, Maryland lawmakers aren’t ruling out more tax increases next year.
The General Assembly passed legislation that will raise taxes on the top 14 percent of earners in an effort to balance the state’s $35.5 billion budget and cut half of Maryland’s $1 billion structural deficit, which measures expected revenue shortfalls in the future.
Lawmakers could look to eliminate the remaining $500 million deficit over the next year by methods such as expanding gambling in the state, cutting spending or passing a long-debated tax increase to fund transportation — a move that some officials have called inevitable in coming years.
“This is an ongoing process,” Gov. Martin O'Malley said this week. “I think we recognize that we’re investing less and less in transportation infrastructure, and our traffic is therefore becoming worse and worse.”
Senate leaders say lawmakers can take a major step toward balancing future budgets without tax hikes by voting to legalize table games and a new casino in Prince George’s County during an expected special session this summer.
However, they warn that if the plan falls through, legislators might be forced to make some unpopular decisions when they return to Annapolis next year.
“It’s going to be much harder now if they want to go this same route [of tax increases],” said Senate Budget and Taxation Committee Chairman Edward J. Kasemeyer, Howard County Democrat. “People don’t want to go through it, legislators don’t want to go through it.”
Despite the tax hikes, Senate Democrats have characterized this year’s regular and special sessions as missed opportunities to pass even larger increases. They say such action would have better stabilized state finances while saving lawmakers the political pain of having to hunt for more revenue next year.
The Senate pushed this year for income tax hikes that would have affected nearly all taxpayers and generated $475 million in extra revenue next year — nearly double the $247 million that this year’s approved tax increases are expected to net.
Senate President Thomas V. Mike Miller Jr. argued that larger hikes, deeper budget cuts and expanded gambling could have eliminated the entire structural deficit.
He said lawmakers will likely have to raise revenue and cut spending next year to balance a budget that will likely grow over this year’s spending plan. He said the General Assembly could consider many of the same cuts to education, health care and local aid that were floated this year as part of what Democrats called a “doomsday budget.”
“What you don’t like in the doomsday budget, you’re liable to see next year,” Mr. Miller, Prince George’s Democrat, said last week.
On the revenue front, there will likely be continued debate over whether the state needs another dedicated revenue source to fund road and transit infrastructure.
Mr. O'Malley lobbied this year for an increase in the state gas tax to pay for transportation, then suggested a penny increase in the 6-cent sales tax when his first proposal proved too unpopular in the face of rising gas prices.
The General Assembly refused both proposals this spring and appears unlikely to consider them this summer, but the governor said transportation needs will only grow over time.
While leaders are expected to push for revenue as part of next year’s balancing act, critics contend that the state must do a better job of managing the revenue it already has.
“Evidently, O'Malley fails to realize that every dollar he takes out of a citizen’s pocket is a dollar taken away from a business and out of the economy,” said Senate Minority Leader E.J. Pipkin, Cecil Republican.
Republicans have mostly led the cries for deeper budget cuts and no tax increases, but they have been joined by some sympathetic Democrats including state Comptroller Peter V.R. Franchot.
Mr. Franchot has criticized yearly revenue increases as an unsustainable strategy and said the state should instead cut spending and emphasize better efficiency in government.
He said the General Assembly previously tried to stabilize the economy with $1.4 billion in tax hikes during a 2007 special session, but the strategy failed.
“We’re repeating something which harms taxpayers and small businesses,” Mr. Franchot said. “We have a choice between treating the taxpayers as a bottomless pit of revenue or making the kinds of efficiencies and savings that everyone else in the state is.”