Tax Cut Folly

March 12, 1995

It would be fiscal folly if state legislators -- prodded by overzealous House Republicans -- rammed through an income-tax cut in Annapolis this session. The losers would be local governments, public schools, community colleges and state universities. That's where reductions would be made to pay for a premature tax rollback.

Are Anne Arundel or Carroll schools getting too much money from the state? Can Baltimore County schools stand a reduction in state aid? Are Harford or Howard's school allocations bloated? How many teachers and professors should be laid off?

These are the kinds of questions legislators should be asking before -- not after -- they consider lowering taxes this year.

Maryland is not yet in good fiscal shape. The economic recovery is just beginning here. A tax cut now could be disastrous. Here's why:

This state's budget outlook -- even after the governor cut $235 million -- is not good. Built-in costs, such as prisons, juvenile detention and Medicaid, continue to rise faster than state revenue. In the next five years, the Glendening administration sees a $261 million shortfall. Under a Republican tax-cut plan, dTC that shortfall soars to $1.3 billion. House Speaker Casper R. Taylor is working on a compromise, phased-in tax-cut linked to reductions in school aid and school-bus allocations.

Tax cuts could make a bad situation worse.

But there's more. Cutbacks in Washington could stagger the states. Rescissions passed recently by the U.S. House of Representatives in the current-year federal budget mean a loss of $90 million for Maryland. By the time Congress rewrites the fiscal '96 Clinton budget, Maryland's losses in federal aid will be far larger.

Gov. Parris N. Glendening has taken a conservative posture. He has set aside $200 million to handle these federal cuts. Even that amount might prove too small. But if there's money left over, the governor wants to dedicate it for future tax relief.

That is a sensible plan. As Comptroller Louis L. Goldstein, a staunch fiscal conservative, warns, "We must remain cautious as the United States Congress deliberates federal tax cuts and the elimination of federal jobs." Officials at Moody's, a Wall Street bond-rating firm, concur: "Because actions which the Congress may take create greater uncertainty about the future course of Maryland's economy and finances, we agree that it would be prudent to evaluate these actions before proceeding with a state tax reduction."

A premature tax cut could backfire. Annapolis should wait until it knows how actions in Washington affect Maryland, until the state economy is stronger, until the governor presents a plan to shrink government -- and hold him to that commitment. The question of an income-tax cut should be given top priority by the legislature -- at next year's General Assembly session.


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