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Advertise on the Tentacle

November 12, 2007

General Assembly Journal Special Session 2007 Part – 2

Richard B. Weldon Jr.

(Editor’s Note: This article reflects the changes to Gov. Martin O’Malley’s tax increase proposals that were made by the State Senate. The massive changes made in the House of Delegates came too late for this edition of The Tentacle. Look for a complete wrap up, perhaps later this week.)

First, it was hailed as the most progressive re-write of a tax code in the nation. Liberal and progressive advocacy groups celebrated Gov. Martin O’Malley’s planned income tax revision as a just and responsible shift of the tax burden away from the working poor and onto the backs of the wealthy.

One week later, it seems that no one likes it.

We’re talking, of course, about the reason that the governor issued the executive order calling the legislature back to Annapolis. He based his ability to raise needed revenue on several legislative proposals: an increase in the sales tax, a hike in the income tax rate for high wage-earners, and slot machines at four horse tracks and two off-track locations.

Once he issued that order, the General Assembly calls the shots. Unfortunately, having the legislature call the shots is like handing a gun to a blind guy. The bullets WILL be fired, and the shots WILL hit something, but no one knows where or what.

The schedule in Annapolis is unpredictable and arbitrary. Another argument against even holding the special session to deal with revenue for the fiscal year beginning next July 1 is that complicated fiscal matters deserve the more methodical and stately pace of the normal legislative session.

Since we started on October 29 at 8 P.M., I’ve been in Annapolis to attend committee hearings, caucus meetings, workgroups, and floor sessions five days, including two Saturdays, on tip jars, but more on that later. Some committees have been meeting everyday, but in a cost-cutting measure, the leadership reduced overall meeting schedules to the bare minimum.

One problem with this reduced tempo is the difficulty that lobbyists and advocacy groups face in trying to figure out what’s happening and where it’s happening. Some hearings are joint (senators and delegates together), some are being held in the regular committee rooms, and some are just stuck wherever space exists.

Several major hearings on the governor’s budget proposals were held in the ornate (but uncomfortable) Joint Hearing Room, with two House Committees (Ways & Means and Appropriations) along with the Senate Budget and Taxation Committee.

I participated in a hearing on the governor’s healthcare bill, where the House committee was invited into the Senate Finance committee room for the combined hearing. The senators sat, as they normally do, in their very comfortable furniture. The House members were seated at small tables arranged in the background. It reminded me of my younger years being seated at the children’s table for Thanksgiving dinner, not quite out of sight, but far enough away to miss the really good stuff.

At this point, which I think is a little more than the halfway point in the special session; things are changing so fast that it’s almost impossible to keep up. Here’s a summary of where we as of this writing.

Income Tax – Governor O’Malley proposed raising the tax rate on the highest income earners, while offering some relief to low income taxpayers through an expansion of the Earned Income Tax Credit (EITC). As it stands now, the rate was reduced by the Senate as a tool to gain support from the Montgomery County delegation. At the same time, and in an effort to reduce the growth in spending, the EITC threshold expansion was also reduced. The House looks to reinsert some of the progressive scaling, then a Conference Committee will have to hammer out the differences.

Gas Tax – Governor O’Malley chose to seek the legislature’s approval of a scheme to index gas taxes, as opposed to an increase in the tax itself. The Senate seems intent to eliminate the indexing of the gas tax to the cost of construction. An alternative seems to be shifting the funding for new transportation infrastructure to the sales tax.

Sales Tax? – Governor O’Malley built most of his new revenue on an increase in the sales tax, from 5% to 6%. He also wanted to tax services typically associated with the wealthy, those being health club memberships, property management services, tanning salons, and massage therapy. This is one area where the Senate really had a field day with the governor’s requests. While they kept the tax increase, the list of services is different. Now, computer services, video arcades, and landscaping services will be taxed if the Senate plan is finally adopted by both chambers. The revenue generated by the sales tax increase will be dedicated to funding transportation.

Corporate tax – One of the foundations of the governor’s plan was to close “loopholes” in corporate taxation. The most egregious seemed to be the concept of combined reporting, whereby large multi-state corporations avoid paying state tax as a result of their organizational structure. The Senate eliminated those provisions.

Green Fund – A House initiative led by the Chesapeake Bay Foundation, this new initiative would be funded by other elements of the larger, but separate, tax bill. The real issue here is the stated purpose for this special session. We were supposedly summoned to Annapolis to close a structural deficit of $1.7 billion dollars. Adding a new $50 million Bay clean-up initiative at the same time we’re struggling with a deficit seems so illogical as to defy belief, regardless of the merit.

Slots Referendum – I still think you’ll see a slot machine gaming question on you presidential election ballot in 2008. Frankly, without it, all of the promises made on new funding will disappear anyway.

Tobacco Tax – The governor wants a $1 per pack increase, and the Senate has included that proposal in the bill they passed on a party line vote.

At this writing the Senate was looking to complete their final voting last Friday. The House will take up the Senate bills during the day and evening on Saturday. A Veteran’s Day session on Monday will begin the conference process, where senators and delegates (likely all Democrats) will agree on the version to send to Governor O’Malley. In all probability, the 2007 Special Session will end later this week.

This two-week boondoggle will go down in history. It will be known as the most expensive two weeks in decades, and it will be known as the session when the legislature was called back to Annapolis to close a $1.7 billion deficit and instead chose to raise over $2 billion in new taxes. It will be known as the session where some industry sectors were protected from a new sales tax just because they were lucky enough to be here, while others were surprised and impacted due to the secrecy and lack of a transparent process.

During the Senate third reader debate, the Senate Committee chairmen were instructed to refuse to answer floor questions from GOP senators. The Senate, normally a very gentlemanly and congenial body, adopted a hostile and partisan presence that both stifled dissent, and even more troubling, dialogue.

For those of us who love and respect this historic institution, the events of the last few weeks cause a great deal of sadness.

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