League of Women Voters of Maryland

Despite some significant differences between the House and Senate versions of various tax and budget cutting proposals, on November 19, 2007, the Governor signed into law six pieces of legislation which are expected to close the $1.7 billion budget gap and provide additional funding for health, higher education, transportation and environmental programs. Some of the provisions were actively supported by the League of Women Voters and some were actively opposed. HB 1 Budget Reconciliation Act Spending reductions of approximately $550 million in fiscal 2009. Some of the reductions are to public school aid formulas (opposed by the League, see separate article) and community colleges, from state employee health account surpluses, other local aid, and position reductions, and $213 million in reductions to be identified by the Governor in January 2008, Since the League has consistently taken the position that funds in addition to those needed to close the deficit should be appropriated to cover state needs, these reductions are a disappointment. SB 2 Tax Reform Act of 2007 1. Although not going anywhere nearly as far as the League proposed, the Act alters the rates and structure of the Maryland personal income tax making it somewhat more progressive. Increased tax rates beginning with tax year 2008 will apply to incomes above $150,000 for single filers and $200,000 for joint filers with a top rate of 5.5% for incomes over $500,000 for both single and joint filers. Previously, the highest rate was 5% for all filers with incomes over $3,000. There will be an increased personal exemption (from $2,400 to $3,200) and an expanded Earned Income Tax Credit for low income filers. 2 . The sales tax will be extended to computer services starting in July, 2008. The League testified in favor of expansion of the sales tax to services but, for lack of time or information, did not support taxes on any particular services. Computer services were added and other proposed services were dropped during the course of the debate. 3. The corporate income tax was increased from 7% to 8.25%. The League supported increased corporate income taxes since Maryland’s are currently low compared to neighboring states. 4. Combined reporting by corporations – a device used to close a loophole which allows many large corporations to avoid all or most corporate income taxes was supported by the League. It was relegated to a 3 year study. 5. The Legislature did close the loophole which allows many corporations to avoid real estate and recordation taxes. The League supported this provision. SB 3 and HB 4 Maryland Education Trust Fund – Video Lottery Terminals and Video Lottery Terminals, Authorization and Limitations. These proposals were vigorously opposed by the League. (See accompanying article). HB 5 Transportation and State Investment Act 1. Increases the tax on cigarettes from $1 per pack to $2 per pack. The League supported this increase as well as an increase in the alcoholic beverage tax which was not passed by the Legislature. 2. The sales tax will increase from 5% to 6% in January, 2008. Tax free periods are designated for purchase of clothes costing less than $100 and energy efficient appliances. The League had reluctantly supported the increase because of the need for additional revenue. Our support was predicated on an increase in the Earned Income Tax Credit and a $50 rebate proposed by the governor to mitigate the impact on low income Marylanders. The Earned Income Tax Credit was increased but the $50 rebate was a nonstarter. 3. Increase in gasoline tax to increase funding for transportation projects. Supported by the League. Another nonstarter. 4. Dedicates approximately $400 million a year to the Transportation Trust Fund for system maintenance and new projects and approximately $50 million a year to a newly established Chesapeake Bay 2010 Trust Fund. While the League agrees that both transportation and the environment need new funding, we expressed our reservations about the dedication of funds to particular areas when the state needs as much flexibility as possible to meet changing needs in a time of tight budgets. SB 6 Working Families and Small Business Health Coverage Act Establishes a Small Employer Health Benefit Plan Premium Subsidy Program and expands eligibility for Medicaid. These programs are intended to insure 100,000 Marylanders who do not currently have health insurance and reduce the cost of health insurance to small business.