Wednesday, Aug. 29, 2007

Repealing ’97 income tax cut is a ‘sensible’ plan, delegate says

That would bring in $588 million to the state, and stop need for slot machines, Simmons says

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In the ongoing debate on the Maryland budget, a Montgomery lawmaker is proposing the state roll back a 10-year-old income tax cut to help plug a projected $1.5 billion gap between spending and revenue.

‘‘It’s sensible, moderate, centrist, plausible and familiar,” Del. Luiz R.S. Simmons said.

Simmons provided an analysis from the Department of Legislative Services that says reversing the tax cut would raise $588 million, which would fill more than a third of the gap between spending and revenue forecast for fiscal 2009.

Simmons (D-Dist. 17) of Rockville and other lawmakers will return to Annapolis in January to pass a budget for fiscal 2009, a 12-month spending plan that begins July 1.

But such a tax increase could send a ‘‘dangerous message” to Maryland taxpayers, said Christopher Summers, president of the Maryland Public Policy Institute in Germantown.

‘‘The legislature is saying we can’t change our spending habits, but we want more of your money,” Summers said.

The state doesn’t want for revenue, he said. In the six years from 2006 to 2011, revenue is set to increase 25 percent to 27 percent. Spending, however, is set to increase 41 percent, Summers said.

‘‘Right there, it tells you Maryland doesn’t have a revenue problem. It has a spending problem,” Summers said.

Simmons doesn’t necessarily disagree. He pinpoints the state fiscal crunch to the 2002 passage of the Thornton reforms to education aid. The plan ramped up the state’s contribution to school districts to $1.3 billion, which is essentially the deficit, without passing a means to pay for it, Simmons said.

The income tax cut was approved in 1997, and it phased in a reduced tax rate, from 5 percent to 4.75 percent. It also increased the personal exemption from $1,200 to $2,400.

Rolling back the tax cut would cost Marylanders $250 per return, according to the DLS analysis. For Marylanders who itemize on their federal tax returns — about half do, according to DLS — the cost would be $196 a year.

Tell Marylanders that a tax hike will go toward schools and they will find the increase more palatable, Simmons said.

‘‘The governor has miserably failed on this point. The public has got to understand the why — not the how — taxes are going to be increased,” he said.

In public appearances, Gov. Martin O’Malley (D) has blamed the deficit, in part, on the Thornton funding increase. He also blames it on the income tax cut.

Although the Public Policy Institute agrees that Thornton is a large part of the deficit, Summers disagrees that repealing the tax cut would bring in the revenue DLS estimates. Other economic variables come into play to determine revenue other than the tax rate, he said.

Simmons’ proposal is in part an effort to prevent progressive tax rates, which would fall disproportionately on Montgomery County, which files 41 percent of the Maryland tax returns reporting $500,000 or more in annual income. On top of that, Montgomery gets far less of its tax revenue back in state aid. The December 2006 ‘‘Balance Sheet Report” from DLS shows Montgomery receives 19 cents back for every dollar it pays in taxes to the state. The average for Maryland jurisdictions is 37 cents.

O’Malley has expressed support for progressive tax rates in Maryland, often asking audiences whether it’s fair that Baltimore Orioles owner and lawyer Peter G. Angelos and the person who cleans his office pay taxes at the same rate.

‘‘The governor supports a progressive tax system that is modern, inclusive and fair, that asks the wealthiest among us to pay a little bit more,” O’Malley spokesman Rick Abbruzzese said Tuesday. ‘‘Delegate Simmons’ plan is regressive and would result in taxes being raised on everyone in Montgomery County, disproportionately affecting working families and seniors, instead of the wealthiest among us who can afford to pay a little bit more.”

Simmons also wants the state to reject legalizing slot machines. Gambling, he said, would fall on the least educated and the poor who were intended to benefit from the Thornton aid to begin with.

‘‘We have to pay for it rather than putting the onus on the backs of the people we’re trying to serve,” Simmons said.