ANNAPOLIS – Gov. Martin O’Malley is proposing capping income tax deductions and rolling back income tax exemptions for Maryland’s highest earners as part of his plan to close the $1 billion hole in the state’s $14 billion operating budget.
O’Malley’s plan, unveiled Wednesday morning, would begin capping deductions for Marylanders making more than $100,000 and reduce exemptions for singles making more than $100,000 and couples making more than $150,000.
The exemptions would disappear for singles at $125,000 and couples at $175,000.
The governor said that only two out of every 10 Maryland residents would receive a smaller amount in their refund check as a result.
“In order to get us through this recession in advance of other states, and 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 in these difficult times, and this is one of them,” O’Malley said.
Though O’Malley’s budget proposal is not reliant upon raising the state’s gas tax, he said this is still under consideration, as is an increase in the flush tax on sewer bills.
His critics were quick to point out these taxes would add up.
“It’s death by incrementalism,” Sen. David Brinkley, R-Frederick, said.
Also controversial is the governor’s plan to shift half the burden of teacher pension costs from the state onto county governments.
Though the state will take on 50 percent of retired teacher Social Security costs in turn, the proposal projects $239 million in additional costs for local governments.
“I have become convinced that some better sharing of that responsibility is in order, primarily because the counties are much closer to the negotiating table than the state is,” O’Malley said.
O’Malley attributed his change of heart largely to Senate President Thomas V. Mike Miller Jr.’s argument that contract negotiations are the major drivers of teacher retirement costs.
“I’ll only be satisfied when it’s enacted into law,” Miller said, when asked if he was pleased with the governor’s newfound stance.
The governor stressed that job creation remained his No. 1 priority while drawing up his budget proposal, going so far as to say this budget was the best at creating and supporting jobs since the recession began.
His plan would allocate $373 million towards school construction, the second-strongest investment he’s made and one he claims will spur job creation. However, an increase in the gas or flush tax could conflict with this aim, according to critics.
“He doesn’t know how to create a private sector job,” Brinkley said of the governor.
The senator would rather see O’Malley stay out of the private sector’s way and allow government projects like InvestMaryland to fund innovative startup companies – generating jobs through business growth.
While O’Malley stressed a balanced approach to the budget, opponents assert he hasn’t addressed the root problem – spending.
His proposal includes $610 million in reductions and cuts to the General Fund, but the budget is still set to grow by 1.9 percent in FY 2013.
“There’s different ways to look at it,” O’Malley said, when pressed on the budget increase. “You won’t find another administration in the history of our state that has restrained spending as steadily, that has made as many cuts as we have made, and you can cross the numbers all you like.”
Warren Deschenaux, the General Assembly’s chief budget analyst, is pleased with the governor’s proposed changes to the spending line.
Chief among these are the reductions in Medicaid, which will save the state money if implemented this year and continually thereafter, Deschenaux said.
He predicts the gap between revenues and spending will be down to about $400 million by year’s end, bringing Maryland closer than it’s been in years to being structurally balanced.
“That’s tantalizingly close to concluding our dance with the structural deficit,” Deschenaux said. “It might even make us think that if we just did a little more we could be done.”
Capital News Service’s Kelsey Miller contributed to this report.