There’s an old saying for Democrats in the House of Delegates that seems to apply this year. “Republicans are not the enemy. The enemy is the Senate.”

The entire leadership at the Maryland State House are all Democrats now — the governor, the presiding officers, the committee chairs, the comptroller, the treasurer. They have supermajorities in both House and Senate. But that doesn’t mean they agree on everything all the time, even when they represent the same constituents.

This year, House leaders have been talking for weeks about the need for more revenues, especially looking ahead to structural deficits in future years. A structural deficit means that projected spending is higher than projected income. Besides inflation, the main driver of these deficits is the promised increased spending on education in the Blueprint for Maryland’s Future. Republican Gov. Larry Hogan vetoed the Blueprint since there was no plan to pay for it. The Democratic legislature overrode his veto – even though there was still no plan to pay its multibillion-dollar price tag.

Sen. Guy Guzzone. (Maryland General Assembly photo)

Maryland state senators, led by Senate President Bill Ferguson and Budget and Taxation Chair Guy Guzzone of Howard County, do not dispute that there are big bills coming in future years. But they are concerned with Maryland’s competitiveness with other states with lower taxes and its slow-growing economy. They agreed with Gov. Wes Moore that they could pass a balanced budget without new revenues. That’s what they did. 

The House leadership, with Ways & Means Chair Vanessa Atterbeary, a Howard County Democrat who runs on a ticket with Guzzone, taking the lead, said that was putting off the inevitable need to find more revenue. The House passed a balanced budget with $1.3 billion in higher taxes, tolls and fees.

Routine disagreement 

Del. Vanessa Atterbeary (screenshot from Maryland General Assembly YouTube)

It’s routine that the House and Senate disagree on the annual budget. Every year there is a conference committee where the delegates and senators hash out their differences on spending issues large and small. Sometimes it’s easy. Sometimes it’s hard. But they have to do it. Passing a balanced budget is the only thing the state constitution requires them to do before they can go home.

Despite its push for more revenues, the House did not go as far as advocates of “Fair Share for Maryland Act” wanted them to go. Led by unions, nonprofits and progressive groups, “Fair Share” targeted Maryland’s wealthiest residents, raising income tax rates for everyone making over $300,000 and increasing estate taxes. These moves hit the kind of residents with enough income to leave the state for tax havens like Florida for six months a year, as IRS data shows they already do.

New corporate tax method

The House did buy into one feature of the Fair Share proposal, combined reporting for corporations. This tries to garner Maryland’s comparatively high 8.25% corporate tax rate on all a company’s earnings. Bills to require combined reporting have been introduced every session for decades now. This is the first time the proposal has made it to the floor. 

Twenty-eight states already tax corporations based on combined reporting. This prevents corporations from shielding income by paying earnings to other subsidiaries. It’s complicated. The only study of the practice done 15 years ago for the Maryland comptroller’s office found that “while combined reporting would likely increase corporate income tax revenues on average, it would also increase the volatility of those revenues; thus, the effect of the proposed change on corporate income tax revenues may be positive or negative in any given year,” said this year’s legislative analysis. In this year’s version, Maryland would become the only state that would tax corporations based on “worldwide” revenues. The new taxing regime doesn’t go into effect for two years. 

Higher vehicles fees

The House also includes money to bolster the Transportation Trust Fund, which is running short. Out-of-state drivers would pay higher tolls. Electric vehicle owners would pay a new $125 annual fee to make up for the fact they’re not paying the gasoline tax; the fee for plug-ins would be $100 and $75 for hybrids. The excise tax, the sales tax on vehicle purchases, would go up from 6% to 6.5%, and registration fees for heavier vehicles, such as big SUVs and pick-up trucks, that cause more wear and tear on the roads, would go up as well.

House Majority Leader David Moon also floated the idea of a sales tax on services, since more of the economy is based on services rather than the goods we traditionally tax. The blowback against this from all sectors of the business community was immediate and fierce, so much so that at the hearing on his bill Moon offered to exempt all business-to-business services, severely reducing the money his bill would raise. The bill went nowhere.    

About the only prediction it is fairly safe to make is that the lawmakers will close up their 90-day session at midnight on April 8, having passed a balanced budget. (In 2012, a required budget reconciliation act that shifts revenues around had to be passed in a special session to finally balance the budget.)

Whether this year or next, higher tolls, vehicle taxes and fees are likely to happen, because a commission has been working on such solutions to cure the shortfall. Combined reporting for corporations, the earlier study showed, produces winners and losers. Will the losers have more influence than the winners in the negotiations that must occur?

Of course, in any situation at home or office when expenses exceed income, there is always the option of cutting expenses. As one witness against the Moon service taxes said, repeating a familiar Republican mantra: “Maryland doesn’t have a revenue problem. It has a spending problem.”

Most Democrats have enthusiastically supported the Blueprint that includes a wide range of education initiatives – expanded prekindergarten, additional aid to high-poverty schools, increased community services in such schools, higher salaries and a more professional career ladder for teachers, greater vocational education. Supporters are loathe to slow implementation or cut any of these initiatives, although there is growing pressure from county officials to do that because of the strain the Blueprint has put on local budgets.

If politics meets financial reality, there may be some combination of all the above – some new revenues, some program cuts, spreading the pain all around. By April 8, a state budget balanced somehow will pass.