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Special session ends with new taxes, cuts

November 20, 2007

Maryland lawmakers wrapped up a special session early Monday after approving $1.3 billion in new taxes and lawmakers and passing a bill to let voters decide whether to legalize slot machines.

In doing so, the Democrat-dominated General Assembly swept aside a Republican proposal for two years of slower budget growth, to give revenues time to catch up with spending.

Will all of this close the $1.5 billion budget gap? We doubt it, because in their rush to get through the session, legislative leaders ignored the possible unintended consequences of their actions.

Attorneys had argued that adding their services to those subject to the state's sales tax would only cause law firms to relocate to nearby states, from where they could continue to serve their Maryland clients.

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Why couldn't the same happen with computer-service companies? Granted, the services sought from those firms are often needed more quickly, but in a state seeking more technology-related jobs, does it make sense to give such firms an incentive to leave?

Republicans also noted that for large companies, hiring an in-house computer technician is no big deal, but for small companies, that's often not an option.

The same might be true of the decision to raise the corporate income tax to 8.25 percent. That's still lower than Delaware, Pennsylvania and West Virginia, which have rates of 8.7 percent, 9.9 percent and 8.75 percent, respectively.

But Virginia's rate remains at 6 percent, which, when coupled with the fact that it's a right-to-work state, gives it yet another advantage in the search for jobs.

Income taxes were raised on the state's top earners, but lawmakers also raised the exemption for those earning up to $150,000 by $800. On Monday, The Baltimore Sun said that the move would cost county governments $82 million.

The state's sales tax went from 5 to 6 percent, making Maryland the same as Pennsylvania and West Virginia, but not Delaware, which has no sales tax. Virginia's sales tax is 5 percent.

During a session devoted to finding new revenues, lawmakers decided to enact some new spending plans, too.

Programs approved included $600 million to cover another 100,000 of the 800,000 who are uninsured in Maryland and a $50 million plan to clean up the Chesapeake Bay.

The bay program's funding originally was to come from a new square-foot tax on development, but now will be funded with the reallocation of some funds and the use of some fees on rental cars.

The possible revival of the square-foot tax in the 2008 session is something the local delegation should keep an eye on.

Tobacco taxes will jump from $1 to $2 per pack. Pennsylvania's tax is $1.35, Delaware's is $1.15, West Virginia's is 55 cents and Virginia's is 30 cents.

The new Maryland rate might inspire more to quit, but could also send more smokers across state lines for their smokes.

That possibility is an example of what we fear in the next session. Now that these programs have been set in motion, if the revenue measures put in place don't cover the costs, other taxes might be approved or aid to local governments cut.

For example, the bill introduced "for discussion purposes" that would force counties to pay a greater portion of the employer's share of teacher pensions might be resurrected.

To those who say that couldn't happen, we remind them that we once believed that no state official would ever be so heartless as to threaten closure of the Potomac Center or the Western Maryland Hospital Center, just to balance the state's budget.

But year after year, the threats keep coming, frightening the state's most vulnerable citizens and their families. If state officials can do such things without batting an eye, don't bet they won't dump more of the state's expenses back on local governments.

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