Maryland Assembly approves income tax hikes

The Maryland House of Delegates on Wednesday gave final approval to a budget package that raises income taxes for some and splits teacher pension costs with local governments.

The House voted 77-60 on the measure raising taxes on single filers who make more than $100,000 and joint filers who make more than $150,000. That move ended a special session called by Gov. Martin O'Malley to avoid about $500 million in budget cuts. The Senate approved the measure Tuesday.

Delegates voted 86-51 for a separate bill to split teacher pension costs over four years and raise taxes on tobacco other than cigarettes.

The special session was needed because the General Assembly failed to pass the package during its regular 90-day session that ended last month.

"Unfortunately, we didn't get it done in a 90-day period of time, but I think everybody understood that we had to come back and do what we believed was in the best interest of the citizens of Maryland -- something that we worked on for a 90-day period of time," House Speaker Michael Busch, D-Anne Arundel, said.

Debate lasted more than two hours with loud and occasionally heated opposition from Republicans that prompted Busch to ask lawmakers to talk in a volume conducive to speaking indoors.

Democrats said the package was needed to avoid painful cuts to education, health and public safety.

"I support this legislation and I urge the body to do so as well, because it allows us to be fiscally responsible while still funding our shared priorities," Delegate Anne Kaiser said.

But Republicans said the so-called "doomsday" budget that went into place at the end of the regular session when the revenue package failed was a more responsible way to balance the budget, because it avoided tax increases they say will hurt business development and job growth.

"If that's doomsday, my friends, we need more of it -- and soon," said Delegate Herb McMillan, R-Anne Arundel.

Lawmakers are working to reduce an ongoing budget deficit of about $1.1 billion by about half. They plan to address the other half next year.

O'Malley, a Democrat, emphasized that the special session was needed to protect education, to keep college tuition affordable and preserve public safety.

"There were a lot of unpopular votes cast in the course of these last six years, but they're the right votes in order to keep our state moving forward," O'Malley told reporters after the session concluded.

The budget reconciliation measure will shift part of the teacher pension costs to local governments over a four-year period. The state now pays for all of the teacher pension costs.

Republicans argued that the shift will simply lead to even more tax increases at the local level.

"This is without a doubt a tax-me-now and tax-me-later plan," said Republican Delegate Richard Impallaria, of Baltimore County.
  But Democrats say Maryland is one of the only states where the state pays the entire cost of teacher pensions, which they believe has grown to become unsustainable in recent years. Supporters of the pension split point out that the state nearly pays as much in teacher pension costs as it invests in higher education.

Tobacco tax increases would jump from 15 percent of wholesale to 70 percent on "little cigars." Taxes on smokeless tobacco such as snuff would rise from 15 percent to 30 percent. There would be no change on premium cigars.

The tax increases will affect roughly 14 percent of the state's top taxpayers:

--Single filers who make between $100,001 and $125,000 a year in taxable income and joint filers who earn between $150,001 and $175,000 a year would see their state income tax rate rise from 4.75 percent to 5 percent.

--Rates for single filers who make between $125,001 and $150,000 a year in taxable income would see their rate rise from 4.75 percent to 5.25 percent. The 5.25 percent rate would apply to joint filers who make between $175,001 and $225,000 a year.

--Rates would rise from 5 percent to 5.5 percent for singles who make between $150,001 and $250,000 annually in taxable income and joint filers who make $225,001 and $300,000 a year.

--Single and joint filers who make more than $250,000 a year would pay 5.75 percent.

The tax increases would raise an estimated $264 million in fiscal year 2013. It drops down to about $210 million in the fiscal year after that because the tax is retroactive in fiscal year 2013, spanning a year and a half.

State analysts estimate the tax increase on a joint filer with two children and $175,000 in taxable income would pay about $254 more in state and local taxes.

The General Assembly moved fast during the special session, which began on Monday.

O'Malley confirmed that another special session will be held this year to take up proposals to expand gambling.

Busch had blamed senators for the failure of a budget deal last month, saying they were too focused on approving gambling measures in the session's final days. Senate President Thomas V. Mike Miller, D-Calvert, has denied that, saying there were big disagreements between the House and Senate on the tax package.