Too weak for a tax cut Soft Md. economy: Revenue shortfall dooms effort this year to lower state income tax.

March 13, 1996

WHEN YOU ARE at least $132 million in the hole, it's time to stop talk of cutting taxes and figure out how to balance the books. That's the situation confronting Gov. Parris N. Glendening and state lawmakers after receiving new and depressing revenue estimates. With the continuing softness in Maryland's economy, a prudent, cautious fiscal approach is imperative.

Three months ago, the governor wisely held off on a tax-cut decision until mid-March, awaiting updated revenue numbers. But since December, bad new had been piled on top of bad news: The federal shutdowns that forced Maryland workers and contractors to dip into savings to survive; the January blizzard and other heavy snow storms that delivered a mighty wallop to the Maryland economy; the holddown in federal spending in Maryland while the federal budget deadlock persists, and bleak sales tax numbers as nervous consumers delayed new purchases.

Put all that together and it would be foolish to continue to consider an income-tax cut this session. Yes, if times were rosier it would make sense to lower personal taxes. It would be a signal to businesses that Maryland is serious about changing its economic climate. But the governor and lawmakers are already sending messages to companies about Maryland's new business attitude: Targeted tax credits, a bigger pool of money to lure companies; an overhaul of state regulations affecting businesses, and a new cooperative approach between state business and environmental agencies.

With the economy so tenuous and continuing uncertainty over federal cuts likely to stretch into next year, this is not the time to take chances with the state's own budget. Some proponents of a tax cut want the governor to dip into the state's reserve fund. Not only would such a move endanger Maryland's triple-A bond rating, but some of that money is needed to close the current $132 million revenue gap. What's left wouldn't even be enough to cover the first year of a tax reduction.

Until Maryland's economy turns around, and until the governor and legislators reduce state spending to match the more modest revenue gains of the 1990s, a tax cut should be postponed. Anyone who feels otherwise has an obligation to come forth with detailed specifics on how the state can afford such tax reductions not only this year, but in future years.

Pub Date: 3/13/96

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