At the Freestate Gun Range in Middle River, for a contribution to Jennings’ campaign you can have your picture taken with National Rifle Association President David Keene and then pick up your weapon of choice for shooting practice.

A $50 ticket includes the “opportunity to shoot 25 rounds from a variety of handguns, including .22, 9mm, .40 and .45 calibers,” says the invitation. Sorry, no photo with the NRA prez.

A $100 ticket gets you the picture plus the chance “to shoot a rare .30 carbine mini anti-aircraft Gatling gun”; $250 gives you a “choice to shoot a Desert Eagle .50 caliber or a Taurus Raging Bull 454 Casull.” And a $500 sponsorship entitles you to the photo and the “opportunity to shoot a selection of fully automatic rifles.”

And there’s lunch before you hit the shooting range.

Desert Eagle .50 semi-automatic pistol. (Photo by DWissman/Flickr)

(The Desert Eagle is one of the most powerful semi-automatics around, as this video shows.)

The gun-toting fundraiser may not stir up as much controversy as the Beretta pistol raffled by the Carroll County Republican Central Committee 12 years ago, including a rebuke from then-Congressman Bob Ehrlich. But it may provide a bit of distraction from the pot stirred this week by the racial remarks on Baltimore City gangs by fellow District 7 lawmaker, Del. Pat McDonough.

–Len Lazarick

Len@MarylandReporter.com

As Republican delegates railed against the proposed state income tax hike Wednesday afternoon, a lone freshman Democrat from one of the most liberal and affluent districts inside the Capital Beltway got up to explain why she too could not vote for the taxes.

Del. Ariana Kelly talks to a radio reporter.

“I believe this discriminates against two-income families with children at home,” said Del. Ariana Kelly, a Bethesda mom with two young children at home.

The State and Local Revenue and Financing Act raises state income tax rates by .25% to .50% for joint returns with more than $150,000 in Maryland taxable income — a 5% to 15% increase in the rate. And the law reduces personal exemptions for these couples, totally eliminating them for couples with more than $200,000 in federal adjusted gross income. This raises both state taxes and the local piggyback income tax.

“We are not talking about people sitting on great piles of money,” Kelly said. “Kids are extremely expensive.”

Increasing the marriage penalty

On her personal website, Kelly explained her opposition further.

“In current tax law, married Marylanders pay a higher tax rate than their single colleagues in the exact same jobs starting at a household income of $200,000. This is known as a ‘marriage penalty,’” Kelly said.

“By changing the tax brackets, this legislation expands the higher marriage penalty tax rates to affect couples earning $150,000 (for example, a husband and wife who each earn $75,000). This makes absolutely no sense to me, because when both parents are working, household expenses, including childcare, are higher, not lower.”

In addition, the highest marginal tax rate of 8.95% — including the county piggyback — will now be applied to married working parents who together earn more than $300,000, but not to a single person living on $250,000.

Impact of exemptions

The change in the personal exemption had a similar impact, Kelly said.
For families with a combined income of more than $150,000, “this amounts to a flat fee per child between $53 and $107. A family of four with a combined income of $150,000 will pay $394 in new Maryland taxes thanks to this exemption phase-out. However, a single man making $150,000 will pay only $104. A single millionaire will pay only $53 extra. Even if that millionaire had a wife and two kids, they would pay only $212 in new taxes from this exemption phase out.”

“This part of the tax plan brings in $82 million, almost entirely from middle-class families with two working parents and dependent children,” Kelly said. Based on data from the comptroller’s office, “I believe that 78% of the estimated 300,000 tax filers affected will have incomes under $250,000; 85% will have two working spouses and 70% will have dependents at home.”

These are particularly relevant numbers in District 16 in Bethesda. According to 2000 Census figures, 40% of the families there had household incomes of $150,000 and above, and 25% had incomes of $200,000 or more.

Del. Kirill Reznik

Another progressive objects

Along with Kelly, Del. Kirill Reznik, another Montgomery County lawmaker who describes himself as a progressive, joined four other Montgomery Democrats who voted against both the tax hikes and the budget act, which shifted teacher pension costs to the counties.

On his blog, Reznik said, “I saw these bills as an unacceptable burden to our lower and middle class working families in Maryland.”

“As a vocal critic of the teacher pension cost shifts, I believe that this shift will force counties, particularly Montgomery County, to either increase property taxes, cut services to the community, or both.  The pension shift, coupled with the tax increases passed, put too heavy a burden on middle class families, especially those with children.  This was not a plan that increased taxes on the top 1%.  Rather, over 40% of Montgomery County residents will see a tax increase of one form or another from this plan, and I refused to vote for a plan that was not progressive.”

Families in Reznik’s District 39 in central Montgomery County had much lower incomes than those in Bethesda, according to the 2000 Census, with only 11% making $150,000 or more.

Opposite views on impact of tax hikes

Del. Kumar Barve

The impact of the tax hikes was widely disputed. Another Montgomery County Democrat, House Majority Leader Kumar Barve, said the tax hikes amounted to $6.25 a week ($325 per year) for a married couple making $250,000, Barve said he and his wife would be paying an additional $4.88 per week and “I am willing to pay that price” to maintain state programs.

Citizens for Tax Justice said Maryland lawmakers were “bucking a national trend” to cut taxes, particularly on the wealthy. The bill “would also lessen the unfairness of a regressive tax system that allows Maryland’s wealthiest residents to pay less of their income in tax than any other group,” the group said, based on an analysis by the Institute for Tax and Economic Policy.

“Only 11 percent of Maryland taxpayers would face an income tax increase in 2012 as a result of SB1302,” the group said, though legislators were quoting a figure that placed it at 14%.

The group said 54% of the new income tax revenue would come from the wealthiest 1% of state taxpayers — a group with an average income of nearly $1.6 million per year.  Eighty-seven percent of the revenue would come from the top 5% of taxpayers.

Most of these higher-earning taxpayers could also take advantage of the “federal offset,” since they can write-off their state tax payments as deductions and receive a federal tax cut in return.

“Seventeen percent of the revenue raised by SB1302 — or $28 million in tax year 2012 — would come not from Marylanders, but from the federal government in the form of new federal tax cuts for Maryland taxpayers,” said Citizens for Tax Justice.

Tax Foundation disagrees

A report on Tuesday by Scott Drenkard of the Tax Foundation calculated that under the next tax bill, a dual-earner, two-child family with $250,000 in federal adjusted income living in Maryland would pay $989 more in state income taxes this year, a total of $17,775 compared to $16,612 in the District of Columbia and $11,651 in Virginia.

Drenkard concluded that “Maryland’s latest income tax increase proposal fails to meet the criteria of sound tax policy. By opting to raise taxes on high-income earners, the proposal seeks to raise taxes in a politically expedient way, but one which will have distortive long-term effects.”

Len@MarylandReporter.com

Del. Michael Smigiel speaks against budget.

The action on the budget and tax hikes was all over but the shouting by Republicans as the House of Delegates approved a final spending plan, shifting half of pension costs to the counties, and raising state income taxes on people making over $100,000 per year.

Twenty-two different Republican delegates rose during the three-hour debate to decry the budget action.

“When we left session [April 9], the budget was balanced,” said House Minority Whip Jeannie Haddaway-Riccio, echoing a common theme. “I say enough is enough.”

(Almost all Republicans voted against the budget that passed in April.)

But Democratic leaders said the pension shifts, fund swaps and tax increases were needed to protect the state’s investments in K-12 education, universities, health care and public safety.

The tax hikes amounted to $6.25 a week ($325 per year) for a married couple making $250,000, said House Majority Leader Kumar Barve. He said he and his wife would be paying an additional $4.88 per week and “I am willing to pay that price” to maintain state programs.

10 Democrats vote against budget, 18 against tax hikes

In the end, the Budget Reconciliation and Financing Act passed 86-51, with 10 Democrats joining 41 Republicans in opposing the plan that changes funding formulas and allocation of revenues. The 10 Democrats included those from more conservative swing districts and Montgomery County liberals who objected to the pension shift that would hurt their county.

The 10 Democrats were: Tiffany Alston, Prince George’s; Charles Barkley, Jim Gilchrist, Ariana Kelly, Ben Kramer, Heather Mizeur and Kirill Reznik, all of Montgomery County; Sonny Minnick and Mike Weir, Baltimore County; and Johnny Wood, St. Mary’s.

Only one Republican supported the budget measure, Del. Wendell Beitzel, Garrett, who serves on the Appropriations Committee.

The debate was far shorter and the vote even closer on the State and Local Revenue and Financing Act, which passed 77-60, just six more votes than needed for it for a constitutional majority.

UPDATED CORRECTION: Eighteen Democrats joined all 42 Republicans present to vote against $300 million in tax hikes.  The 18 Democrats were: Tiffany Alston, Prince George’s; Charles Barkley, Jim Gilchrist, Ana Sol Gutierrez, Ariana Kelly, Ben Kramer, Heather Mizeur, Kirill Reznik, all of Montgomery County; Pam Beidle and Ted Sophocleus, Anne Arundel; Eric Bromwell, Steve DeBoy, Sonny Minnick, Dan Morhaim, Johnny Olszewski, and Mike Weir, Baltimore County; John Bohanan and Johnny Wood, St. Mary’s; Mary-Dulany James, Harford; David Rudolph, Cecil; and Kevin Kelly, Allegany.

Complete roll call votes

UPDATE: The complete roll calls on the two bills in the Senate and House are now posted on the General Assembly website. The main page for the two bills has the amendments and the roll calls on those as well.

Budget Reconciliation and Financing Act, SB1301, Senate roll call, House roll call

State and Local Revenue and Financing Act, SB130s, Senate roll call, House roll call

Senate Republican Leader E.J. Pipkin opposes tax hikes in floor debate.

By Len Lazarick
Len@MarylandReporter.com

As one delegate put it, it was déjà vu all over again as the House of Delegates on Tuesday rejected amendments to a revised spending plan and $300 million in tax hikes that had often been proposed in the regular 90-day session.

In three and half hours of often lackluster debate, seven mostly Republican amendments to the Budget Reconciliation and Financing Act went down to defeat. Lawmakers rejected attempts to reduce the shift of teacher pension costs to the school systems or to force the state to use the flush tax exclusively for reducing pollution to the Chesapeake Bay.

In the State and Local Revenue and Financing Act, the delegates voted down attempts to reduce or eliminate income tax hikes of 5% to 15% on people making more than $100,000 a year. A couple of Montgomery County delegates sought to substitute an increase in the sales tax from 6% to 7% for the income tax hike, which will have a quarter of Montgomery’s high-earning taxpayers paying 40% of all the new revenues. But the effort fizzled after 10 minutes of discussion without even a recorded vote.

“I know we’re probably not in a mood to do this,” said Del. Charles Barkley, D-Montgomery, who offered the sales tax increase.

Mood to finish quickly and get out of town

The delegates seemed mostly in a mood to finish the work of the special session and get out of Annapolis, as they will likely do after final votes this morning. Following Tuesday’s session, House Speaker Michael Busch pointed out that almost all the issues had been thrashed out in the regular session, which ended without action in the House on the two bills substantially similar to those they debated Tuesday.

Delegates on way to State House run gauntlet of pit bull owners.

Streaming back into the afternoon session, delegates walked through a gauntlet of hundreds of pit bull owners demanding action to overturn a court decision that declared their pet dogs “inherently dangerous.” But legislative leaders were adamant that the session would deal only with the unfinished budget measures, and nothing else.

Senate passes measures

Shortly after noon Tuesday, the Maryland Senate across the hall had passed a final budget and more than $300 million in tax hikes.

The debate lasted only an hour and half, with remarks by each Republican opponent countered by a different Democratic supporter of the measure.

Senate Republican Leader E.J. Pipkin dominated the opposition, speaking at least a dozen times with nearly the same message. Despite the “marketing” that the budget was being cut, Pipkin said, overall spending was actually going up $700 million and the tax hikes were unnecessary.

The final vote on the Budget Reconciliation and Financing Act was 33-13, with two Democrats — Sen. Roy Dyson of St. Mary’s and Brian Frosh of Montgomery — joining 11 Republicans in voting against the plan, which makes some reductions in spending formulas and shifts half of teacher pension costs to county governments. Republican Sen. George Edwards of Garrett voted for the bill.

The final vote on the State and Local Revenue and Financing Act was 27-19. Seven Democrats joined all dozen Republicans opposing the tax hikes. The seven Democrats were: Dyson; John Astle, Anne Arundel; James Mathias, Lower Shore; Anthony Muse, Prince George’s; and Jim Brochin, Norman Stone and Bobby Zirkin, all of Baltimore County.

A video shot throughout the day on Monday shows the demonstrators opposed to the tax hikes and spending increases, and a rally by public employee unions supporting the bills.

The video was produced by Emaun Kashfipour.

Senate Republican Leader E.J. Pipkin opposes tax hikes in floor debate.

The Maryland Senate passed a final budget and over $300 million in tax hikes shortly after noon Tuesday. The House starts debate on the bill Tuesday afternoon.

The final vote on the Budget Reconciliation and Financing Act was 33-13, with two Democrats, Sen. Roy Dyson, St. Mary’s, and Brian Frosh, Montgomery, joining 11 Republicans voting against the plan that makes some reductions in spending formulas and shifts half of teacher pension costs to county governments. Republican Sen. George Edwards, Garrett, voted for the bill.

The final vote on the State and Local Revenue and Financing Act was 27-19. Seven Democrats joined all dozen Republicans opposing the tax hikes that raise income tax rates 5 to 15% on people making more than $100,000 a year and increase taxes on commercial mortgages. The seven Democrats were: Dyson; John Astle, Anne Arundel; James Brochin, Baltimore County; James Mathias, Lower Shore; Anthony Muse, Prince George’s; Norman Stone and Bobby Zirkin, both of Baltimore County.

A video shot throughout the day on Monday shows the demonstrators opposed to the tax hikes and spending increases, and a rally by public employee unions supporting the bills.

The video was produced by Emaun Kashfipour.

Senate Budget and Taxation Committee

The Maryland Senate is expected to give final approval today to a package of tax hikes that will raise more than $300 million a year, with the bulk of it coming from increases of 5% to 15% on incomes of taxpayers making more than $100,000 per year.

But a little noticed provision will also raise $36 million in new taxes from companies that back mortgages on commercial development and homebuilding. Opponents say it will add to the cost of construction and harm Maryland’s business rankings.

The proposed tax hikes will require businesses to pay county governments a recording tax on “indemnity mortgages,” in which third parties guarantee to pay a mortgage if a builder or developer fails to pay a construction loan or other debt.

“This is just another impediment to put in front of business,” said Sen. Allan Kittleman, R-Howard, offering an amendment to strip the new tax from the bill. All the money in the additional recording tax will go to local governments, partially offsetting a shift in the cost of the teacher pensions to county governments.

Sen. James Robey, D-Howard, floor manager of the tax hikes for the Budget and Taxation Committee, resisted the change, saying there was a provision in the bill to study the impact on business and report before the next session.

Kittleman’s amendment failed, as did every Republican attempt to stop each of the tax and fee increases in the revenue act. The dozen GOP senators were often joined by a few Democrats opposing the tax hikes.

Bankers, builders testify against tax

At a committee hearing a few hours before the floor debate, representatives of banks, developers, landlords, contractors and homebuilders all testified against the recording tax. The O’Malley administration described the current exemption as a “tax loophole which allows entities to avoid paying taxes on real estate transactions.”

“This is a very high tax compared to surrounding states,” said Tom Ballentine, representing NAIOP, the Commercial Real Estate Development Association. Among neighboring states, only Virginia has a similar but lower tax on indemnity mortgage transactions.

In written testimony, Ballentine pointed out that commercial developers pay repeated mortgage taxes on the same property during the construction process as various loans are used to finance different aspects of the development. The indemnity mortgages are also used to back lines of credit.

Nick Manis, representing Associated Builders and Contractors, pointed out that the committee had killed the bill in the past and “we are still in some very difficult times.”

“This is just another new tax,” Manis said.

Katie Maloney, of Maryland State Builders Association, said the new tax “will have a chilling effect” on efforts to get credit for new construction.

The tax applies only to mortgages of more than $1 million. The recording taxes on real estate taxes are set by county governments and currently raise over $250 million a year.

House of Delegates Speaker Michael Busch

In this podcast, House Speaker Michael Busch spoke to reporters about the budget and the cuts that would have to be made if tax increases don’t pass. “Only 16% of Marylanders are being asked to pay a little more.”

Republicans at news conference in State House rotunda object to special session.

In this 3-minute podcast from Duane Keenan, hear from an angry Michelle Jefferson from We the People Carroll County. She came to Annapolis to protest the special session . “Shame on them for not doing the people’s work in the time frame that they had… They raise our taxes, we put less food on the table. Go in there and find me a skinny legislator.”

Senate President Mike Miller

In a second 3-minute podcast, Duane Keenan talked to Senate President Mike Miller. He says, “It would have been nice if we could have got it done in the 90-day session.”  House Republican Leader Tony O’Donnell said, “There is no way that we should be here.”

While the governor has touted Maryland’s comparatively low tax burden on its high income populace, some groups are concerned that the income tax hikes proposed for next week’s special session will harm Maryland’s national rankings on taxes and business climate.

Gov. Martin O’Malley on Wednesday cited various national rankings for Maryland’s income, sales and corporate taxes to show they were not as high as some opponents portray. But Larry Hogan, chairman of the pro-business Change Maryland, said the legislature’s own fiscal analysts say the state already has the second highest income tax burden in the nation.

In its 2012 Issue Papers (page 27), the Department of Legislative Services says Maryland ranks No. 2 in the nation on its reliance on the personal income tax, according to 2009 Census data.

Hogan said, “This report raises red flags about Maryland’s over-reliance on the income tax to support state spending, and our top elected officials are on the verge of making the problem even worse.”

Rates going up 5% to 10%

The proposed tax hikes raise income rates 5% to 10% on single taxpayers making $100,000 a year or more and on couples earning $150,000, generating over $200 million in new revenues next year. (The actual percentage rates on taxable income go up .25% to .50% to a maximum of 5.75% depending on the income bracket. O’Malley says the top one-sixth of taxpayers will be paying more.)

The DLS report does confirm O’Malley’s assertion that Maryland taxes by some measures are not that high.

“Maryland ranks twenty-third and eighteenth, respectively, in total state and local government revenues and spending measured on a per-capita basis and fifty-first and forty-eighth, respectively, in revenues and spending as a percentage of
personal income of residents,” the report says. “However, Maryland relies more on tax revenues than most states and less on nontax revenue sources.”

“Generally, Maryland ranks in the bottom half of all states with respect to property taxes, corporate income taxes, and sales taxes measured on a percentage of income basis,” the report says. “Total state and local government spending and revenues in Maryland are not generally high compared to other states.”

Relying on the income tax

“We ought to be proud” of the state’s reliance on the income tax, said Neil Bergsman of the Maryland Budget and Tax Policy Institute, which advocates a “balanced approach” of tax hikes and spending cuts to balance the state budget. “The income tax is the one that is most related to ability to pay.”

“The main reasons that Maryland ranks so high on income tax reliance is because we allow local governments to share in the income tax,” Bergsman said. According to Senate President Mike Miller, Maryland is the only state that allows all its counties to share in the income tax, adding a piggyback tax of up to 3.2%, which the state collects for the local governments.

This is mainly used to fund the school systems, which receive half or more of the local budgets in most jurisdictions. School systems in most states rely on the more regressive property tax.

“This is also a fairer system,” Bergsman said.

The tax hike, which will get hearings on Monday in Senate and House committees, “is a compromise,” Bergsman said. “It is not anyone’s first choice. I liked the Senate plan better,” which raised taxes on a broader group. “It would have put us in a better position in coming years.”

Hogan disagrees, citing a January Gonzales poll that found 96% of Maryland voters thought they were taxed too much or just enough. “If our elected officials won’t listen to the 96% of Marylanders who are opposed to higher taxes,” Hogan said, “maybe they should at least listen to their own budget analysts who are raising red flags about over-reliance on the income tax.”

Business groups opposed

Maryland Business for Responsive Government, Americans for Prosperity and Republican lawmakers are all opposing the proposed income tax hikes, while groups such as Progressive Maryland are backing even higher tax increases, particularly on high income taxpayers.

Don Fry of the Greater Baltimore Committee writes in Center Maryland that the income tax proposal “would impose substantial tax increases on major segments of the state’s taxpayers.”

“These days, people with these kinds of income levels aren’t poor, but they are far from wealthy. And many are small business owners and job generators,” Fry says.

“In this economy does anybody deserve an income tax increase of 10 percent or more? A second pertinent question: is this kind of tax structure good for our business climate?

“It would appear to violate a core pillar of a competitive state environment for economic growth and job creation: ‘A tax structure that is fair and competitive,’” Fry concludes.

From left: Senate President Mike Miller, House Speaker Michael Busch, Gov. Martin OMalley, Lt. Gov. Anthony Brown announcing special session.

Maryland has some of the lowest taxes in the country, Gov. Martin O’Malley said Wednesday officially announcing plans to call a special session of the legislature to fix a budget impasse — partially by raising taxes.

Maryland has “the third lowest state and local taxes as a share of income,” O’Malley said, partially because residents have some of the highest incomes in the nation.

The state has “the ninth lowest sales tax,” he said, a figure he’s cited several times this year as he’s proposed applying the sales tax to gasoline. Also, it has the eighth lowest business taxes on mature firms and the 12th lowest rate on investments in new firms.

How can this be, when Senate Republican Leader E.J. Pipkin lambasts O’Malley as “tax-happy?”

“According to the American Tax Foundation, the citizens of Maryland already bear the brunt of the nation’s fourth heaviest tax burden,” Pipkin said in a release Wednesday.

Similar sources, different conclusions

Surprisingly, according to the governor’s press office, O’Malley and Pipkin rely on some of the same sources for their information, including the Tax Foundation, a longstanding tax-adverse group whose data is frequently used to berate Maryland for its high taxes and bad business climate.

O’Malley’s reference to “third lowest state and local taxes as a share of income” comes from the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institutions. For 2004-2009, it ranks Maryland 49th in state and local “general revenue as a percentage of personal income.”

The Tax Foundation calculates the number differently than the Tax Policy Center and ranks Maryland as 12th highest in the nation for state and local taxes as a percentage of state income.

In the Tax Foundation calculations, Virginia ranks 33rd; Pennsylvania, 10th; Delaware, 23rd; D.C. is 24th, and West Virginia, 27th. But the percentages cover a very limited range with Maryland taxes at 10% of personal income (tied with Massachusetts); Pennsylvania is at 10.1%, and Virginia is at 9.1%. The state with the highest tax burden is New Jersey at 12.2%.

Taxes per capita

According to the tax foundation, Maryland fairs much worse on tax burden per capita, coming in 5th at $5,218 for every person in the state. Virginia is 13th at $4,392; Pennsylvania, 15th, $4,190; Delaware, 17th, $4,091; D.C. is 3rd, $6,076; and West Virginia is 44th, $3,034. The Tax Policy Institute ranks Maryland 10th in tax collections per capita (again a slightly different number).

In its annual State Business Climate index published in January, the Tax Foundation does indeed show Maryland with the 9th lowest sales tax. But that is part of a chart that ranks Maryland among the 10 worst states for business climate. In this year’s chart Maryland moved up to 42nd place from 44th place last year “due mostly to the expiration of the state’s ‘millionaire’s tax’ on high-income earners,” said Tax Foundation economist Mark Robyn.

In a separate, more detailed analysis of state taxes on business, the Tax Foundation does rank Maryland 8th in its overall taxes on “mature firms.” Another study by the Ernst & Young accounting and consulting firm ranks Maryland 12th in the country on the effective tax rate on new investments in selected industries.

Calculating taxes on new firms in a very different way, the Tax Foundation ranks Maryland 46th in the country on taxes paid by new firms – fifth from the bottom. Maryland comes in dead last on what used to be big enterprises here – capital-intensive industries such as steel plants.

New Maryland rates among highest in country

But in the end, because the House of Delegates won’t go along with a broader tax increase backed by the state Senate, the new tax rates will raise about $250 million for the next fiscal year, retroactive to Jan. 1.

Single taxpayers having taxable income from $150,000 to $500,000 and joint taxpayers with incomes from $225,000 to $500,000 will see the biggest rate hike, 0.5% — figures 10% higher than their current rates. Exemptions in those brackets will also be cut, which will provide $31 million in additional revenues to the counties as well.

Combining the new rates with the top local piggy back rates of 3.2% would bring Maryland top rates to almost 9%, putting it among the top 10 states for its state and local income tax rates.