The State Feeds Peanuts to the Fat Cats

March 06, 1994|By BARRY RASCOVAR

For a state that doesn't seem to have enough money to make ends meet, Maryland is about to take a peculiar step.

Legislative leaders and the governor have agreed to let a 1 percent income surtax on the wealthy lapse -- a move that will cost $40 million in revenue and help put more money in the pockets of Maryland's richest citizens.

Ninety-nine percent of the citizens in this state won't get a penny back from this move. Only the affluent will benefit.

But the lucky 20,000 filers with adjusted gross incomes above $150,000 ($100,000 for single filers) get a break: A couple earning $300,000 after deductions will wind up with a net savings of $585, or about $11 a week.

The situation is even more ludicrous for well-off couples earning less money. Take a family with an AGI of $200,000. The net tax savings there is $104, or $2 a week. And for a single filer with an AGI of $140,000, the net savings is $55, or about $1 a week.

What does the state get for giving up this levy on the well-to-do?

It surely won't result in the wealthy pumping gobs of money into the local economy for costly durable goods. It surely won't lure new businesses to Maryland so corporate executives can pick up a few extra bucks each week in take-home pay. But it does rob state government of badly needed money for public schools, the developmentally disabled, the homeless and other worthy causes.

In fact, legislators would dearly love to have that extra $40 million. They're in the process right now of chopping the governor's budget by $160 million. Numerous state agencies will be hurting after these cuts; local governments could take another fiscal hit. Money could be stripped from college scholarship funds.

But Maryland's richest 20,000 will get some extra cash at tax time next year.

None of this makes much sense. But the governor and legislators have fallen for the business community's pitch that this ''wealth tax'' stands as an impediment to Maryland's ability to bring in new economic development.

Business lobbyists argue that corporations will, indeed, decide against moving to Maryland, that their top executives will look at the wealth tax here and selfishly vote to set up shop in some other state with lower income-tax rates.

That's buncombe.

Decisions to move companies revolve around a state's corporate taxes, a state's regulatory climate, a state's schools and universities, a state's work force, its transportation, its proximity to power centers such as Washington and New York, its quality of life and whether the company's bottom line will benefit. A puny $11 in a $300,000-a-year executive's weekly paycheck isn't a significant factor.

It's more symbolic than anything else. By letting the wealth tax lapse, Maryland will see its combined top state and local income tax rate drop from 9 percent to 8 percent the next time Money magazine ranks the states.

It might even help Maryland escape the list of states placed in the ''tax hell'' category.

But don't think for a minute this tax ''break'' does anything more than reward the rich.

So much for progressive taxation. Legislators in Annapolis have turned away from virtually all efforts to make the income tax structure fairer and more equitable. They have rejected virtually all proposals to streamline government and to cut out inefficiencies. They have become very much part of the problem, not part of the solution.

If legislators truly wanted to send a positive signal to business leaders, there are far better ways. For starters, they could slash this state's egregiously high real-estate closing costs -- tops in the nation. Talk about turn-offs to corporate executives: When they get a look at the extra fees charged to buy a house in Maryland (and to register a car in Maryland), they quickly opt for Virginia or the Carolinas.

But there's no effort this session to lower closing costs. Legislators will admit there is a huge problem, yet they don't have the gumption to do something about it.

So next year at this time we will be facing a growing structural imbalance in Maryland's state budget with a long-range deficit in the billions, a flat-rate income-tax system that gives wealthy Marylanders a break over the other 99 percent of taxpayers, a legislature unwilling to reform the state's total tax system or to make the hard choices to downsize and bring sweeping efficiencies to government.

Nothing will have been done to truly spur economic development.

The end of the ''wealth tax'' will do only one thing: make the rich a tad richer.

Barry Rascovar is editorial-page director of The Sun. His column appears here each Sunday.

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