Searching for a way to cut taxes Glendening wavers: Making up for lost revenue remains the sticking point.

August 19, 1996

LET'S GET one thing clear: Gov. Parris N. Glendening, like any good politician, would love to cut taxes. It would blunt a Republican challenge in 1998 and improve the governor's popularity.

But wishing and doing are two different things. In his 19 months as governor, Mr. Glendening has adopted a cautious, conservative approach on budget and tax matters. He's not about to embark on a feel-good tax cut plan that could cripple the state's balance sheet,

In June, Mr. Glendening repeated his concern that Maryland's slow-growth economy makes a tax cut unlikely. Since then, he's modified that somewhat: After talking with James Brady, his economic development chief, and a commission on business growth, the governor said he'd take another look. The business leaders argued an income-tax cut was the best way to boost Maryland's corporate image and immediately improve profits for small businesses.

Mr. Brady, who has run a major Baltimore accounting office, and Fred Puddester, the governor's budget chief, are exploring alternatives. Their task isn't simple. Maryland government faces a $200 million structural deficit next year. Revenues are growing at 3.5 percent a year versus growth in expenses of nearly 5 percent. The biggest drains -- local aid (primarily to schools) and entitlements (primarily Medicaid).

These two categories consume half the general fund budget. Yet making big cuts would be controversial. Ways must be found to trim or eliminate non-essential state programs and slow the rate of growth. That's the best hope for bringing spending in line with receipts.

The state treasury would take a $250 million hit to cut taxes 5 percent. A House committee review will help determine if the sales tax should be broadened or exemptions removed to offset such a cut. The problem: Exempted groups will howl if their tax breaks are imperiled. Still, this is worth a look. Maryland's income tax ranks fourth-highest, while its sales tax ranks 34th as a percentage of income. That imbalance should be corrected -- as long as this doesn't create larger structural deficits that jeopardize the state's triple-A bond rating.

Pub Date: 8/19/96

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