Sanity on Tax Cuts

March 28, 1995

For state leaders to cut personal income taxes this year would have required them to suspend reality and ignore the sad fiscal facts confronting the state of Maryland.

Legislative firebrands -- especially radical/conservative Republicans -- wanted to -- into the unknown. But key fiscal leaders and the governor finally prevailed last week in winning a sensible delay until next year.

Maryland is not yet in a position to cut back on personal taxation. There is still a big structural deficit that refuses to shrink. There is a regional economy far weaker than the rest of the country. There is a near-certainty of reductions in federal aid to Maryland that could approach $200 million.

With all these storm clouds on the horizon, this is not the moment to throw away the umbrellas.

Gov. Parris Glendening was steadfast in refusing to yield to the tax-cut clamor. Even when House Speaker Casper Taylor temporarily jumped on the reduce-taxes bandwagon to gain the upper hand over House Republicans, the governor refused to budge. He was helped by strong sentiment in the state Senate -- especially from Senate President Mike Miller and budget leader Barbara Hoffman -- that a tax cut now would be lunacy.

By delaying a decision a year, the governor has a chance to start re-shaping state government to reduce expenses; to come up with long-term plans for eliminating the structural deficit; to see if the region's economic rebound is for real, and to ascertain how much of a "hit" Maryland will take from Washington. Then -- and only then -- should the question be posed: "Can Maryland afford to give its citizens a well-deserved break at tax time?"

What legislators and the governor have yet to confront is that a big tax reduction will require a major shrinkage of aid to local governments, which now consumes one-third of the general fund budget. That total is rising rapidly: While budget growth is being held to only 3.6 percent this year, state aid to local governments is up over 7 percent.

The main reason is education, which gets 75 percent of all local aid. Before legislators call for tax cuts next year, they should identify the programs in their counties that will be reduced in size. How much of a county's education aid should be cut to make room for a lower personal income tax?

Over the summer and fall, we expect lawmakers and the governor to educate one another on the implications of major tax relief. Yes, a tax-cut is always desirable, but only if Maryland can afford it and officials are certain it does not harm essential local and state programs.

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