A tax bill cometh?

The chair of the House Ways and Means Committee said she expects her committee will cobble together a revenue package meant to help the state cover billions in looming deficits and ensure the legislature can continue to pay for an education reform plan.

The effort by the House panel comes days before a key deadline in the 2024 legislative session. Moving such a package would keep the idea of tax increases on the table even though Senate leaders have declared them dead this year.

“We should know by the end of the week what proposals we want to move forward,” House Ways and Means Chair Vanessa Atterbeary (D-Howard) said.

Budget books for the fiscal 2025 budget proposed by Gov. Wes Moore (D). Photo by Bryan P. Sears.

The Maryland Senate is expected Wednesday to debate its version of a $63 billion budget proposed in January by Gov. Wes Moore (D). Final approval is expected this week.

Senate Budget and Taxation Chair Guy Guzzone (D-Howard) said the effort this year sets the state’s fiscal course for the near future.

“We start with a budget of $63 billion. We end with a budget of $63 billion,” Guzzone said. “We’ve handled a half a billion dollars worth of problems that came up along the way. So we use the governor’s budget. There was a lot of great stuff in the budget. We started in that place, and we ended up, I think, in a solid place as we move forward.”

Legislative budget analysts in January warned lawmakers of operating budget deficits of $3 billion in a few years. The gap is driven by implementation of the most expensive portions of the Blueprint for Maryland’s Future K-12 education reforms.

A more than $3 billion shortfall over five years in the Transportation Trust Fund is not included in the operating budget estimate.

Senate Budget and Taxation Committee Chair Guy Guzzone (D-Howard). Photo by Bryan P. Sears.

“We do have out into the future, some significant issues to deal with,” Guzzone said. “I know we’ll also figure out ways to deal with them in due time.”

He and other Senate leaders do not believe that the time is now.

Guzzone said lawmakers have been diligent in the last two years to double the size of the state’s rainy day cash reserves as well as pump $1 billion each year into the Blueprint for Maryland’s Future education reform plan.

“As we came into this year, we knew that [fiscal] ’25 and ’26 for sure, and maybe even going into ’27, we were in good financial shape, because we had those extra revenues plus the extra revenues that we put in the Blueprint,” he said.

House Democrats continue to express concern about the looming fiscal picture.

Atterbeary said she expects her committee to send a package that is “a mix” of tax proposals.

There’s no shortage of proposals. Some impose new taxes. Others increase or expand existing ones. Still others seek to “modernize” how the state taxes residents and businesses.

Atterbeary’s committee held a hearing Monday on a late-introduced proposal to collect nearly $3 billion in new sales taxes.

House Bill 1515, sponsored by House Majority Leader David Moon (D-Montgomery), would collect $4 billion in new sales tax revenue once fully phased in.

Currently, the sales tax in Maryland only applies to consumer goods. The new revenue would come from expanding sales taxes to a broad array of services.

Moon’s bill also proposes decreasing the overall sales tax rate by a penny to 5-cents on the dollar. The reduction offsets the initial $4 billion in new tax collections by about $1 billion.

The result would net the state roughly $3 billion once fully phased in.

House Majority Leader David Moon (D-Montgomery) said his bill to expand the sales tax by $3 billion is meant to start a conversation about the state’s fiscal needs and priorities. Photo by Bryan P. Sears.

“It is intended to put on the table among your revenue options. A different approach to at least provide a point of reference and contrast, and that is to attempt to address our healthcare deficits and blueprint funding issues with a single vote,” Moon said. “That is in contrast to the other road ahead of us, which is attempting to cobble together a revenue package out of many disparate options until we get to the desired number.”

The bill is “a bit of a conversation starter,” he said.

“I do not believe it’s fiscally prudent for us to delay vetting all of the options,” Moon said. “I believe we need to start that process. Now. No matter what our partners in government think that timeline should be.”

Opponents included business owners in nearly every service industry in the state.

Mike O’Halloran, state director for the National Federation of Independent Business, said “there is not a single aspect of Marylanders’ laws this tax hike wouldn’t touch. Things like cutting grass, cutting hair, even the clown sculpting balloon animals at the county fair is getting hit by this. These things do not happen in a vacuum. It will lead to increased costs not only on the backs of Maryland small businesses, but also their clients and customers.”

Those increased costs would put them at a competitive disadvantage with larger businesses, O’Halloran said.

Moon’s bill is similar to one proposed in the pandemic-shortened 2020 session. The House Ways and Means Committee rejected House Bill 1628 that year.

The bill sponsored by Moon has no companion proposal in the Senate. Leaders in that chamber remain steadfast in opposition to tax increases this year.

Moon’s proposed expansion of the sales tax is not the only option.

Also on the table is a $1.6 billion proposal that would close corporate tax loopholes, increase taxes on the wealthiest Marylanders and provide a tax credit to some working families. A Senate version of the legislation was considered a non-starter almost from the beginning.

Several lawmakers have proposed more incremental approaches including House Bill 1072 and House Bill 1073.

The bills call for an increase of the current per pack tax on cigarettes by 75 cents to $4.75 or increasing the sales tax on alcohol by a penny to 10 cents on the dollar — an amount that would be 4 cents on the dollar more than the general sales tax.

Moon said he understands that even if the House passes his bill, it faces a tough go in the Senate.

“I can’t control what other people do. I can only do what makes sense, in my opinion for Maryland and the House,” said Moon, “Again, we just had another write down in our projected revenues. Our books are off by another quarter of a billion dollars but it’s actually half a billion we’ve got to make up just this year. And that’s a change that happened from December to now.”

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