Panel OKs income tax rise

ANNAPOLIS — A Senate committee voted yesterday to increase the income tax on Maryland’s highest wage earners.

Members of the Senate Budget and Taxation Committee voted 10-5 to increase the personal income tax on residents who earn $1 million or more, as part of a plan to repeal the tax on computer services they passed in November.

“If you repeal the computer-services tax, you’re going to have to backfill it with something,” said Senate President Thomas V. Mike Miller Jr., Southern Maryland Democrat. “It’s political. It’s a very political vote.”

Committee members rejected a proposal from Sen. Richard S. Madaleno Jr., Montgomery Democrat, to cut $200 million in state spending instead of increasing the income tax.

“I just don’t see how we should move forward with another tax on small business, as a means to remove another tax that we’ve all come the conclusion would be damaging to the economy,” Mr. Madaleno said. “If I were a Virginia economic development official, I’d be knocking on doors saying: ’Come to Virginia. It will reduce your taxes by 75 percent.’ ”

Lawmakers passed the tax on computers services during a special General Assembly session. Business leaders quickly objected to the tax, saying it was approved without hearings and under the cover of the special session.

The income tax increase was proposed by Gov. Martin O’Malley, a Democrat, and raises the tax to 6.25 percent for those who earn more than $1 million. The tax would last for three years, and the proposal includes cutting $50 million in spending and transferring $50 million from the state’s Transportation Trust Fund to the general fund.

The full Senate would have to pass the measure, then the House would have to approve it.

House Speaker Michael E. Busch, Anne Arundel Democrat, said yesterday he has the support to pass the bill and that it is a better alternative than transferring money from the Transportation Trust Fund.

Computer-service representatives said they were heartened by the vote, but that it was only a first step to a repeal.

“We are very gratified by the difficult vote by the committee,” said Julie Coons, chief executive officer of the Tech Council of Maryland.

Mrs. Coons said board members thought having to pay the “millionaire’s tax” was better than having the computer-services tax.

“Members of the board really understood it was an economic viability issue,” she said.

Mr. O’Malley and Senate leaders worked throughout the week to wrangle support for his plan, which lawmakers said was in jeopardy earlier in the week.

Senate committee members hinted at some of the political trade-offs necessary to secure their support for the new tax.

Sen. Donald F. Munson, Western Maryland Republican, said he voted for the tax increase to save the Hagerstown Higher Education Center, an institution budget leaders are considering slashing funding for this week.

“What I’m trying to do by this vote is save my university,” he said.

Mr. Miller said Mr. Madaleno endangered his political future by voting against the tax increase.