Maryland top earners would pay more under O’Malley budget

ANNAPOLIS — Gov. Martin O’Malley called for higher taxes Wednesday on Maryland’s top earners, new Internet-based revenues, and for counties to shoulder a share of teacher pension costs to support a “difficult” $35.9 billion budget.

The fiscal 2013 proposal is 3 percent larger than this year’s spending plan and would raise taxes on 20 percent of Marylanders.

“I don’t like asking for this. I don’t like doing this,” O’Malley said. “In order to get us through this recession in advance of other states, in order to protect the priorities of the people of our state and the futures of our children, there are difficult things we need to ask of one another during these difficult times and this is one of them.”

He proposed capping income tax deductions and phasing out exemptions for taxpayers with incomes above $100,000.

The changes would bring the state $182 million next year, the largest component of $311 million in new revenue sought by O’Malley.

The governor also called for lawmakers to close tax loopholes that cost Maryland $20 million every year.

Eliminating credits for using coal mined in Maryland would save $6 million, cutting tax breaks for telecommunications would save $9 million and cutting a collection of smaller items would yield $2 million.

As he went after tax loopholes, O’Malley proposed to rekindle a fight that first flared last year.

The budget would eliminate a sales tax exemption for sales of precious coins and bullion worth more than $1,000 that was the subject of a Daily Record story in December.

Del. Dana Stein, D-Baltimore County, tried to end the break last year, but Baltimore Mayor Stephanie Rawlings-Blake, city delegates and a company that puts on three coin shows a year in the city opposed the measure and it was killed.

Under the income tax changes proposed by O’Malley, exemptions would drop to $1,200 from $2,400 for single filers who earn between $100,000 and $125,000 and for families with incomes between $150,000 and $175,000.

Exemptions would be eliminated for taxpayers making more.

The administration estimated that a family of four with annual income of $150,000 would pay $191 more per year in state and county taxes.

Republicans pounced.

“Forget millionaires, this budget takes aim at thousandaires,” said House Minority Leader Anthony J. O’Donnell, R-Calvert and St. Mary’s. “The governor is balancing the budget on the backs of the middle class and small businesses at a time when we should be looking for ways to make them thrive.”

But O’Malley touted the job-creation potential in his budget.

Some $3.6 billion in capital spending — $353 million more than this year, including nearly $2 billion on transportation — would support 52,000 jobs, according to the administration.

The governor said he is still working on a plan to double revenue from the state’s “flush tax” to pay for sewage treatment plant projects. A proposal to increase transportation spending is forthcoming, he said.

Senate Minority Leader E.J. Pipkin, R-Upper Shore, called O’Malley’s budget proposal a “job killer.”

“This is tax, tax, tax and then spend,” he said. “This governor has not seen a tax that he does not like.”

O’Malley’s proposed budget includes $610 million in cuts to planned spending, including $239 million in teacher pension costs that would be shifted to the counties.

He also anticipates $211 million in Medicaid savings, including $85 million in payments to hospitals, and paying $55 million in debt service costs with bond premiums.

The governor would close a loophole that allows businesses to create shell companies to avoid real estate transfer taxes and enact a handful of other measures in addition to income tax changes to allow counties to cover their new pension burden.

O’Malley also proposed raising taxes on cigars and smokeless tobacco products to raise $19 million, and he turned to the Internet for revenue.

The budget includes a proposal to tax online retailers who use in-state affiliate marketers to drive traffic to their websites. That would raise $21 million, according to budget documents.

Amazon.com, the main target of such laws, has sued most states that have pursued sales tax collections that way.

T. Eloise Foster, the governor’s budget secretary, acknowledged the company’s litigiousness, but called the effort “a first step.”

“The governor feels the need to be fair to Maryland retailers” that collect the sales tax, Foster said.

The governor also proposed pulling in $2 million more next year by selling online tickets for lottery games including Powerball, Mega Millions, Pick 3, Pick 4 and Keno.

Lottery Director Stephen L. Martino said there would also be an Internet version of instant scratch-off tickets.

He said he hoped online sales would start by the end of the calendar year.

The Maryland State Lottery Agency is still working out how the sales will work and how traditional lottery vendors will fit in, said Martino.

The prospect of online sales has riled retailers who fear cannibalization of their lottery business.

“We’re fearful because nobody has shared anything with us,” said Jack Milani, owner of Monaghan’s Pub in Woodlawn and co-chair of the Maryland State Licensed Beverage Association’s legislative committee.

Milani said he has an employee dedicated to the bar’s lottery machine nearly 12 hours a day, seven days a week.

“We don’t want to see anything that takes people out of our stores,” he said.