Legislators Set a Tax Trap to Ensnare Themselves

BARRY RASCOVAR

March 22, 1992|By BARRY RASCOVAR | BARRY RASCOVAR,Barry Rascovar is editorial-page director of The Sun.

Having gone more than halfway toward raising taxes by a quarter-billion dollars, are members of the General Assembly foolish enough to fashion a second tax plan to more than double that amount -- and double their political troubles?

It could happen. The irony is that state legislators would get all the blame for this second dose of higher taxes, and none of the credit for helping to keep worthwhile services in operation. Yet legislative leaders seem intent on opening themselves to further taxpayer anger.

Here's the situation: With the state facing a $1.2 billion deficit, Assembly honchos are hammering out a tax-and-spending-cut plan. This will entail anywhere from $200 million in added tax revenue (House Speaker R. Clayton Mitchell's position) to $247 million in expanded taxes (the Senate-passed bill).

A key part of this budget-balancing act requires a big reduction in aid to local subdivisions -- $272 million. This has brought howls of protest from county politicians. Without state largess, they face the bleak prospect of making deep and painful cuts in local services. The only other option is raising the property taxes -- a no-no in this era of local tax rebellions.

So Governor Schaefer and legislators in Annapolis hit on the idea of giving counties permission to raise the local share of the state income tax -- the piggyback portion. While the state's top tax rate would remain unchanged at 5 percent for all but the wealthiest filers, the local piggyback tax rate could rise from 2.5 percent to 3 percent.

The final decision for this income-tax hike would be made by the local councils and executive. But they'd be foolish not to approve the full 10 percent increase.

And why not? This is a $300 million tax package that will turn local officials into heroes while state legislators take all the grief.

When the bill comes due April 15, 1993, Marylanders will find themselves making bigger income-tax payments to Comptroller Louis Goldstein's office in Annapolis. And it is toward elected officials in Annapolis that taxpayer ire will be directed.

Meanwhile, local officials will get off scot free. They'll balance their budgets without raising the property tax or chopping essential services. They'll use this as the perfect re-election vehicle -- and some of them will run for state Senate seats by

touting their record of keeping taxes down while incumbents in Annapolis engineered a half-billion-dollar tax extravaganza.

Are state legislators so dense politically that they will set up such a scenario? Things are in such confusion in the State House this year that this could well be the case.

A number of officials are beginning to question the value of tacking on a higher income-tax levy to help out the counties. They note that state agencies have taken a tremendous blow from two years of budget reductions. Local services haven't suffered nearly as much. Why should localities be spared the pain?

Some critics also assert that until local residents feel this budget-cutting anguish themselves the animus toward higher taxes will persist. It is one thing to hack away at far-off programs in the agriculture and natural-resources departments. But what if a homeowner's trash pickups were cut to once a week? Or libraries were forced to close and school class sizes soared while after-school sports ended?

Then Marylanders would understand the full ramifications of ''no new taxes.'' It can be done, but the cost in quality of life may be more than citizens are willing to tolerate.

A third argument used against the piggyback add-on is that it is a rich-counties tax. Two-thirds of the extra money flows to just four counties -- Montgomery, Baltimore County, Prince George's and Anne Arundel. Montgomery alone would reap a first-year windfall of an astounding $100 million.

Because the tax-hike is based exclusively on income, the rich counties with the most affluent Marylanders get royally rewarded; the poor counties and Baltimore wind up with much more modest sums. The gap between rich and poor in Maryland would only widen.

Even a ''disparity grant'' to the poor subdivisions wouldn't help, because the future revenue growth of the piggyback tax in rich counties could be enormous.

Reaching an accord on a tax package this session has been extraordinarily complicated. Governor Schaefer has been a minor player. The same is true of the Senate president, Thomas V. Mike Miller.

This leaves tax decisions up to an always divided Senate Budget and Taxation Committee and a deeply divided House of Delegates, where Speaker Mitchell favors holding taxes down while Appropriations Committee leaders favor higher levies.

Further compounding the situation is a ''no new taxes'' chant led by House Republicans, the capitulation of Baltimore County legislators to the tax rebels and a faction from Montgomery County that seems intent on killing any agreement unless that subdivision gets most of the new aid.

One way or another, Maryland will wind up with a balanced budget when the General Assembly adjourns next month. But the fate of a quarter-billion dollars in piggyback tax revenue for local governments remains very much up in the air.

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