Md. 'can't afford' tax cut now, governor says Slow economy, doubt on federal spending, falling revenue cited

March 13, 1996|By Peter Jensen | Peter Jensen,SUN STAFF

Whatever slim hopes might have remained for Maryland income tax relief in the near future were dashed yesterday as Gov. Parris N. Glendening announced he opposes a tax cut this year.

A sluggish economy, continued uncertainty over federal spending, and falling tax revenue have made a tax cut unaffordable this year, Mr. Glendening said at a State House news conference.

Paying for a tax cut would have required dipping into the state's reserves or cutting back on the "core value" programs of education, public safety, economic development and environmental protection, he said.

"We will not implement a tax cut until we can afford it," he said. "We can't afford one now. We are cutting programs and laying off state workers. We'd be forced to cut services on which many taxpayers depend."

The announcement came on the heels of new revenue estimates that foresee $55 million less than expected in taxes this fiscal year and $77 million less next year.

To keep the state's $14.7 billion budget balanced, the governor said he will dip into the state's "Rainy Day" fund to cover this year's deficit. The fiscal 1997 shortfall likely will be addressed through a combination of money held in reserve and budget cuts pending in the House of Delegates and Senate, he said.

The governor's announcement surprised few legislators. Mr. Glendening did not assume a tax cut in his proposed budget for next year. He said two months ago that any possibility of one hinged on favorable March revenue estimates and the outcome of the federal budget stalemate.

Mr. Glendening also rejected the idea of financing a tax cut by digging deeper into the more than half-billion dollars held by the state in reserve.

Doing so would compromise the state's AAA bond rating, which has saved taxpayers $60 million in interest payments over nine years, he said.

An income tax cut is a top priority for business leaders, who believe it would improve the state's business climate. When local "piggyback" taxes are factored in, Maryland has one of the nation's highest income tax rates.

House Speaker Casper R. Taylor Jr. said the decision to defer a tax cut was the correct one.

But, Mr. Taylor said, he would like to see business leaders help legislators formulate a plan to restructure the state's tax system that could be adopted next year.

"The will is not here to pass this kind of legislation now," said Mr. Taylor, an Allegany County Democrat who has been a leading tax cut proponent. Champe C. McCulloch, president of the Maryland Chamber of Commerce, said the governor's decision was disappointing and hoped it would lead the administration to increase its support for other pro-business legislation pending in Annapolis.

"We can't wait and hope things are going to be better," Mr. McCulloch said. "We have to change the structure and size of government to a level we can afford."

Republican leaders in the legislature criticized the governor for giving up on a tax cut this year.

House GOP members are expected to offer legislation Monday to trim the state budget by more than $200 million enough to finance a 6 percent income tax cut.

"I didn't believe him when [he] said he'd try to do it this year," said House Minority Leader Robert H. Kittleman, a Howard County Republican. "If he does it, it will be in the fourth year of his term, when it's the political thing to do."

Pub Date: 3/13/96

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