Schaefer broaches taboo issue of taxes Tentative targets for expansion are sales, income taxes

December 06, 1991|By John W. Frece | John W. Frece,Board of Revenue EstimatesAnnapolis Bureau of The Sun

Handed dismal economic news for the umpteenth time yesterday, Gov. William Donald Schaefer finally acknowledged he has virtually no choice but to try to raise state taxes.

Carefully circling the politically explosive issue, Mr. Schaefer indicated that he may not put forth a specific proposal until he is convinced there is public support for it. But he predicted that could come in a matter of weeks, as soon as the public feels the nasty effects of having the state budget slashed one more time.

Mr. Schaefer played coy with the tax issue for half an hour after the Board of Revenue Estimates officially informed him that Maryland's budget deficit has again deepened, this time by at least $220 million from an estimated $190 million.

He began by volunteering that he might look favorably on an increase in and expansion of the state's 5 percent sales tax, with some of the current exemptions repealed. Later, he added that he might also be interested in restructuring the personal income tax to shift more of the burden to the rich. But he insisted in both cases that he was waiting for someone else, some "statesman" to propose such a measure.

As television cameras rolled, the governor repeatedly emphasized that he was not proposing anything.

"N-O-T," he spelled out, threatening to write it on paper, if necessary, to make his point.

But afterward, pressed by a small group of reporters to elaborate on his tax remarks, the governor capitulated.

"We're playing dodge ball on who's going to do what," he said. "Let me put it to you: I'm going to do it. I mean, I have to do it. There isn't anybody else."

But Mr. Schaefer acknowledged that anti-tax sentiment is still strong in the state and that many Marylanders still believe the budget problem can be remedied simply by trimming "government waste," thinning top-heavy bureaucracies, or eliminating high-profile expenditures such as the new baseball stadium in Baltimore or operation of the governor's mansion in Annapolis.

He said he recalls only too well the "five months of punishment" he endured after proposing a major tax restructuring plan that was rejected by the General Assembly a year ago. He said the public was poised to "stomp to death" anyone who would propose such an idea again.

"I don't want to do it when it's the wrong time," he said, adding: "It's the wrong time. There is no credibility yet. They [the public] don't believe it yet. They haven't felt the cuts that have been made up till now because they've been gradual."

That, he predicted, could change within the next two weeks when he announces the sixth major reduction in the past 18 months. With an already lean state budget freshly trimmed by $446 million just two months ago, few targets remain that will not translate into immediate reductions in services to Marylanders, especially for the poor, Mr. Schaefer said.

Aid to the state's counties and municipalities -- many of which have their own budget problems -- is sure to be cut again, he acknowledged.

And unless the General Assembly joins him in developing an overall solution to a deficit problem that now exceeds $1 billion over the coming 18 months, he said he will have no choice but to cut those areas of the budget not otherwise mandated by state or federal law or the Constitution.

That can only include new reductions in health care services, housing programs, law enforcement or other basic governmental functions, the areas of government where the most money is concentrated, he and his aides indicated.

And it will include layoffs, he said.

Yesterday's talk of taxes was sparked by the estimate of state revenue the governor receives each December and uses in preparation of the budget he must submit to the General Assembly in January.

This year's estimate was about what the governor's own advisers had told him to expect: Revenues have slipped by another $140 million, with $105 million of the drop appearing in personal income taxes. Sales tax revenues, reflecting the loss of consumer confidence during

this prolonged recession, were off by another $32 million.

"I've been handling the sales tax since 1959 [the year he became the state's tax collector], and I've never seen such a drastic change," said veteran Comptroller Louis L. Goldstein.

The Board of Revenue Estimates, which Mr. Goldstein chairs, said it now expects to take in less general-fund revenue in the fiscal year that ends next June 30 (fiscal 1992) than it did in the 12 months that ended this past June 30 (fiscal 1991). That's the first time anyone could remember such a decline happening.

Even as revenues are dropping, the cost of providing social programs has exploded in a state where at least 95,000 jobs have been lost in the past year and overall employment has slipped to below 1989 levels. Medicaid, the health care program for the poor, is consuming nearly 20 percent of the overall state budget and is some $80 million in the red.

"It can't get much worse," Mr. Schaefer said, forcing a smile. "We're almost at the bottom now."

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