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O’Malley’s deduction reduction proposal in trouble

ANNAPOLIS — The leader of the state Senate said Wednesday that the governor’s proposal to reduce homeowner mortgage interest tax deductions will not survive the chamber’s Budget and Taxation Committee.

David Winterling, a small business owner from Ellicott City, holds a sign expressing his frustration with Gov. O?Malley?s budget proposal to cap income tax deductions.

On a day in which Maryland Realtors pleaded with the committee to eliminate the budget provision, the office of Senate President Thomas V. Mike Miller, D-Calvert and Prince George’s, said he did not expect the measure to receive much support.

Miller was in a hearing Wednesday afternoon and was not available to comment.

Mary C. Antouin, CEO of the Maryland Association of Realtors, said she was “cautiously optimistic” that the measure, part of Gov. Martin O’Malley’s plan to bridge a projected $1 billion budget deficit, would be voted down.

“We believe real estate pays more than its fair share already,” Antouin said during committee testimony.

Real estate accounts for nearly 50 percent of local government revenues statewide due to property tax, and the ability for consumers to buy and sell their homes is a critical component to the state economy, Antouin said.

The proposal in S.B. 152, O’Malley’s budget, calls for itemized tax deductions to be reduced by 10 percent for homeowners making more than $100,000 a year and 20 percent for those making more than $200,000 a year.

Realtors have said that would effectively kill homeowner mortgage interest deductions for higher-income Marylanders, “one of the cornerstones” of promoting home ownership.

But an O’Malley spokeswoman said the deductions would not be eliminated, and that the “slight” cap would affect just 20 percent of Maryland’s population.

“This is the best proposal,” Raquel Guillory said. “It will cap deductions for only the highest of earners. … The Realtors’ association is overselling this … verging on being dishonest.”

Sen. David Brinkley, R-Carroll and Frederick, said the state understood the plight of the housing market, and wanted to “keep the value of the home up there.”

If that’s true, Antouin said the state must “step out of the way and allow us to recover.”

Pat Terrill, president of the Maryland Association of Realtors, said that while there would never be a good time to cap tax deductions for homeowners, doing so as the market’s recovery limps along would be especially destructive.

And she said though the market is showing signs of that recovery, those signs were present in the previous four years as well, before gains ultimately slumped.

The measure would put “undue burden on homeowners and a struggling real estate market,” Terrill said.

If the provision was dead on arrival, though, Realtors took no chances on a rain-soaked day in Annapolis.

Several hundred Realtors, umbrellas raised, rallied in Lawyers’ Mall at the foot of the state house before 9 a.m. Wednesday. One observer said nearly 600 Realtors — bused in from around the state — were signed up to attend the rally.

Sen. Nancy J. King, D-Montgomery, said when she looked out toward the mall, she was amazed by the dedication shown by the hundreds of protestors standing in a cold rain.

Mark Wilson, who has been a Realtor in Harford County since 1984, said he made the trek because he thought passing the provision would be detrimental to the state.

“We might as well put a fork in the entire economy of Maryland,” Wilson said. “We don’t want to mess with this at all in this economy.”

Realtors thought it was important for them to show up in numbers at Annapolis because “we’re the only protectors homeowners have,” said Gloria M. Farrar, a Realtor in Upper Marlboro and national director for the National Association of Realtors.

The tax change “should never happen,” she said.

Changing the tax rules in the midst of a recovering housing market is one thing, an industry lobbyist said. But more troubling is what passage of the reduction means from a long view.

“What’s going to stop them from coming back and doing it again once they open that door?” asked Jamie Gregory, a lobbyist with the National Association of Realtors.

The provision will be discussed in a House Appropriations Committee hearing Thursday.