Holding out hope for a tax break

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Despite revenues that continue to disappoint, some state officials are hoping there will be an opportunity to provide a tax break to Maryland businesses.

The exact type of tax break appears to be shifting as legislators gain a better understanding of the structural deficits they will have to deal with in both the current budget year and fiscal 2015.

But some Democrats say the cuts are misguided, while some Republicans want to see the General Assembly adopt an across-the-board cut in personal income taxes before legislators go home to run for re-election.

Sen. Ed Kasemeyer, D-Howard and Baltimore, chairman of the Senate Budget and Taxation Committee, said his committee looked at the possibility of wider corporate tax relief during meetings over the summer, but the chances of a broad measure have likely evaporated.

“I think we may be moving to do something to try and help small businesses and Subchapter S corporations in light of the fact that we raised income taxes on those who file as individuals a few years ago,” Kasemeyer said. “The corporate tax [reduction] issue for bigger corporations seems to be going away.”

In 2012, the legislature approved Gov. Martin O’Malley’s request to raise income taxes on more than 440,000 of the state’s so-called high earners — families and individuals reporting six-figure incomes.

Included in that category are also many small business owners who pay individual rates when they file their taxes.

“Small business is the key to job growth,” Kasemeyer said.

The possibility of lowering taxes comes as the legislature enters the final year of its current term and many lawmakers make plans for re-election campaigns.

But the fiscal reality is inescapable. In October, legislators were told by state budget analysts that there was an $87 million shortfall in revenue in the current budget and an even larger structural deficit for the coming year.

Last week, the state Board of Revenue Estimates wrote down revenue for the current year by nearly $102 million, even as they projected that combined revenue for this year and next would exceed projections by $41 million.

Other candidates, such as Attorney General Douglas F. Gansler and Del. Ron George, hope to bolster their gubernatorial prospect with similar calls for business-friendly tax reform.

In August, Gansler, a Democrat, proposed reducing the state’s corporate tax rate from 8.25 percent to 6 percent over five years. He said the change would help Maryland compete for jobs against neighboring states with lower tax rates.

The rate was raised from 7 percent to 8.25 percent in 2007 as part of a tax package intended to close the state’s structural budget gap.

Gansler’s proposal is similar to a bill sponsored last year by George, R-Anne Arundel. In that bill, George called for reducing the rate to 6.75 percent.

Some opponents estimate that the costs of such a reduction would approach $300 million each year and $1.6 billion once it is fully implemented.

Del. Heather Mizeur, D-Montgomery, said the idea to reduce corporate income taxes is misguided.

“What we should do for small businesses is eliminate the ability for larger corporations to avoid paying any taxes at all,” said Mizeur, who favors combined reporting legislation that prevents companies operating in Maryland from avoiding state taxes.

Mizeur, who is also running for governor, said the $197 million resulting from combined reporting would pay for some small-business tax relief.

Some Republicans in the General Assembly want to see tax reform taken a step further.

“We want to see tax relief for everyone, not picking winners and losers,” said Del. Kathy Szeliga, R-Baltimore County.

Szeliga, the House minority whip and member of the House Appropriations Committee, said the 43-member Republican caucus will make a 10 percent across-the-board income tax reduction its top priority in the coming session.

The reduction, which would be phased in over three years, would reduce state revenue by between $600 million and $700 million once it is fully implemented, according to Szeliga.

The delegate said revenue from expanded gaming would help cover some of the costs. Szeliga added that the state would also see more money in its coffers resulting from the decrease.

“It’s worked before when we’ve lowered taxes,” said Szeliga. “[Democrats] increased tax rates over the last eight years and they’re not getting what they expected. We were told the increases in 2007 would fix the budget problem. Has it fixed it?”

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