House Committee Opts for Higher Business Taxes, Lower Income Tax Rate

Related Link: Special Report: Special Session 2007: Budget Crisis

By Kate Prahlad
Capital News Service
Friday, Nov. 9, 2007

ANNAPOLIS - The House Ways and Means Committee voted Friday to add three new brackets to the personal income tax structure and increase the corporate income tax to 8.75 percent.

The committee's proposals would make the income tax more progressive and exact more money from businesses than both Gov. Martin O'Malley's plan to fix the state's $1.7 billion budget shortfall and the plan approved Friday by the Senate.

The House committee also kept "combined reporting" on corporate profits in its bill, a measure that the Senate rejected. Supporters say combined reporting would make multistate corporations pay the tax they owe for doing business in Maryland, but business groups say it would result in more confusion and paperwork than revenue.

"The bill here is more progressive," said Delegate Kumar P. Barve, D-Montgomery, chairman of the subcommittee that first proposed the changes. "It will raise revenues to the general fund and provide for a good increase to the Transportation Trust Fund."

Barve also said the plan "will improve the business climate in Maryland, especially with the money generated for transportation."

O'Malley's income tax plan would have taxed the highest earners at rates up to 6.5 percent. The Senate's highest rate tops out at 5.5 percent.

The committee's plan, which will go to the full House on Saturday, would set an income tax rate of 5.75 percent for individuals making more than $200,000 and married couples earning $250,000 or more.

Incomes of $150,000 to $200,000 for singles and $200,000 to $250,000 for couples would be taxed at 5.5 percent.

Singles making $125,000 to $150,000 and joint filers making $175,000 to $200,000 would be taxed at 5.25 percent, with lower earners taxed at 4.75 percent.

Revenue subcommittee members said the House proposal would generate $1.2 billion for the general fund and another $425 million earmarked for transportation. That is more than the governor's original package and the Senate's version, but only by a few million dollars.

Sen. Bobby Zirkin, D-Baltimore County, said he was concerned about the House's "more radical direction" on income tax, while Sen. Paul G. Pinsky, D-Prince George's, said he was heartened to hear what happened in the House.

Like the Senate, the House proposal would double the tobacco tax and raise the vehicle titling tax from 5 percent to 6 percent. The House version would give buyers credit for half of a trade-in vehicle's value in figuring the titling tax.

The current House version also expands the sales tax to parking facilities and all repair services.

"It seems like they're picking groups for sales tax out of thin air," said Sen. Jim Brochin, D-Baltimore County. "Those groups have no redress, so it's basically who's your lobbyist."

But Barve said those groups had their chance at a public hearing in February for a bill proposed then by Delegate James W. Gilchrist, D-Montgomery. The bill, which sought to expand "taxable services" in the state, died in committee.

Some delegates argued that taxing car repairs and denying buyers full value of trade-ins would discourage new car sales, keeping older, more-polluting and less-safe cars on the road.

"It's an expense to maintain cars and it's hitting everyone's pocket," said Delegate J.B. Jennings, R-Baltimore and Harford. "It's unfair . . . you're killing the little guy."

"This is a safety issue," said Delegate Robert McKee, R-Washington, whose amendment to remove all mention of auto repairs from the bill failed.

The committee approved an amendment from Delegate Ron George, R-Anne Arundel, to allow seller's privilege, which lets merchants pay the sales tax on an item, generating the same revenue for the state, but giving the appearance of no sales tax.

Even though Delaware charges a gross receipts tax, George said, it advertises no sales tax, which draws buyers across the border.

Delegate D. Page Elmore, R-Somerset, who was a vocal proponent for seller's privilege at the committee meeting, said it would help Eastern Shore small businesses faced with out-of-state competition.

"Where I come from," the sales tax increase "is hard to swallow," he said. "You have to understand perception is what controls people."

Copyright © 2007 University of Maryland Philip Merrill College of Journalism

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