A Taxing State of Affairs

January 10, 1992

"Where's the solution? Where's the answer?" Gov. William Donald Schaefer asked in his annual State of the State address yesterday. How will Maryland cover its $1.2 billion shortfall? Until the governor spoke, few had dared to offer a plan for action. Now Mr. Schaefer has taken the initiative and put forward his outline, which relies heavily on an array of higher taxes.

Over the past year, the Schaefer administration has cut $1 billion from the state budget and will cut another $500 million in spending this year. But that still leaves a $700 million hole. There are only two ways to bridge the gap: shut down entire agencies and deprive local governments of much of their state aid -- or increase taxes. Mr. Schaefer has chosen the latter course.

He is backing $40 million in fees suggested by his commission on government efficiency. "If people are going to use the services, they'll have to pay for them," Mr. Schaefer said. That's only proper.

He wants a big cut in local aid, offset by an optional 20 percent increase in the local piggyback income tax rate. That unpopular step would be left to each local council and executive. Cost to taxpayers: between $250 million and $300 million.

But the governor also wants to divert 10 percent of current piggyback income to counties where the money is earned. This $150 million would help localities such as Baltimore City, Baltimore County and other subdivisions with big employment centers pay the cost of infrastructure and services provided for businesses. This, too, is only fair.

Most of the money to balance the state budget would come from expanding -- but not increasing -- the existing sales tax. Dry cleaning, car repairs, data processing and other services would be taxed. Loopholes, such as the one excluding diet dog and cat food ($200,000 in lost revenue), would be ended. It is a sensible way to proceed.

Corporate taxes would be raised, as would the cigarette tax, alcohol taxes and the gasoline tax. It is a sweeping agenda, but one that is necessary to meet the most severe budget crisis to hit Maryland in decades.

In many respects, the Schaefer approach mirrors a plan already put forward by Sen. Laurence Levitan, the Senate's top budget expert. In other respects, it mirrors the wishes of House Speaker R. Clayton Mitchell, who favors the Schaefer approach of broadening the sales tax as the major revenue source. But nothing is likely to happen on the tax front until the governor and lawmakers first make major reductions in government expenses. That is essential to establish credibility with a skeptical public.

These are rough times for officials in Annapolis. The protests from interest groups about to be taxed or about to lose state aid or pay will be loud and long. Governor Schaefer has had the courage to announce a practical tax plan. Now it is up to the General Assembly to show the same kind of courage in balancing the state's fiscal books.

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