One way to cut state's income tax Broaden the sales tax: Trade-off would give Md. more balanced tax system.

June 03, 1996

GOV. PARRIS GLENDENING once again has reiterated his doubts that Maryland's economy can rebound strongly enough in the next few years to make an income-tax cut possible. There's already a $200 million structural deficit looming in next year's budget picture, and making enough reductions in services to cover that gap, plus accomodating a tax cut of a similar magnitude, isn't politically realistic at this time.

Still, if Mr. Glendening and legislative leaders want to pursue an income-tax reduction, there is a way to do it without running the perilous course just described. It wouldn't jeopardize the state's financial outlook, either. In fact, it might improve the situation: Cut the income-tax rate while broadening the sales tax. This would be a trade-off with no negative fiscal implications. And it wouldn't mean a new pot of tax money for the governor to spend.

Such a revenue-neutral plan would require courage from the General Assembly and the governor, since a broader sales tax won't be popular with affected groups. People are sure to complain, for example, if haircuts and dry cleaning are hit with a 5 percent tax. They won't like it if repair shops charge a tax not only for parts but labor, too. Lawyers, accountants and engineers would fight a service tax on their work vigorously.

But there are dozens of ways to make the sales tax broader in Maryland. It is something legislators and the governor ought to investigate. At the moment, this state is too dependent on its income tax for revenue and fails to get as much from its sales tax as other states. Maryland ranks No. 4 nationally in its income-tax burden on local citizens, but is in 45th place when it comes to a citizen's sales-tax burden.

Adjusting these tax burdens is appropriate. A lower income tax would cheer the corporate community, which long has promoted such a symbolic, "pro-business" move. James T. Brady, state secretary of business and employment development, argues that reducing the top personal income-tax rate would be especially helpful for small businesses, which generate most of the new jobs in Maryland.

It makes little sense to cut the income-tax rate when the economy is weak or if it creates a fiscal crisis in future years. But if this can be done in a revenue-neutral fashion by widening the application of the sales tax, Maryland would come out ahead. It would be a logical way to fix an imbalance in the tax system while helping Maryland in the heated race for jobs.

Pub date: 6/03/96

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