Taylor's tax-cut trade-off Reduce the income tax: But broaden sales tax to make Md. more appealing to businesses.

September 21, 1996

An editorial in Saturday's editions incorrectly stated that Gov. Parris N. Glendening had favored an income tax cut during his 1994 campaign. In fact, he said he favored lowering business taxes.

The Sun regrets the error.

IF HE PULLS it off, House Speaker Casper R. Taylor will be a hero to state business leaders. And overnight he will become a formidable candidate for governor. That helps explain why Mr. Taylor says his main objective for next year is passage of a bill cutting the state's income tax rate.

But there's a catch: It cannot be done without creating a big budget deficit. A 10 percent tax cut would reduce revenues $500 million a year. The pragmatic Mr. Taylor is well aware of that trap. So he has embraced an idea we suggested on this page in June: Compensate for the lost revenue by broadening the state's sales tax so it applies to more services.

FOR THE RECORD - CORRECTION

Such a trade-off would have some enviable results. The high income tax rate hurts efforts to lure companies into Maryland. Combined with the local piggyback income tax, the combined levy can be as high as 8 percent in some jurisdictions. Nationally, the income-tax burden in Maryland ranks fourth highest.

Yet the sales-tax burden ranks fifth lowest. That's because the levy is so narrowly drawn. It excludes most services. It is not being evenly applied throughout the Maryland economy. As a result, the state doesn't get as much yield from its sales tax as do most other states.

If you take your car to the repair shop, the sales tax is charged for the new tires but not for the labor involved. There's no sales tax on haircuts or dry cleaning or for the services performed by lawyers, accountants or engineers.

Mr. Taylor has had House panels working on this issue. Coming up with a practical tax plan that can withstand the assault of vested interests is a crucial step. But even then, the House speaker faces an uphill battle. Gov. Parris Glendening, though he won election on a platform that favored cutting the income tax rate, says the state's economy is too fragile to consider a tax reduction that would shrink revenues. Mr. Glendening also isn't likely to let a potential political rival succeed in such a quest.

Additionally, the governor's new-found ally, Senate President Mike Miller, has been cool to the House speaker's tax plan. There's inevitable tension between the two legislative leaders.

Still, the speaker is on the right track. The governor ought to encourage lawmakers to find a tax trade-off to his liking. Giving Maryland a fairer and more equitable tax structure is an admirable goal. So is improving Maryland's business image. We'd like to see Mr. Taylor, Mr. Miller and Mr. Glendening put politics aside long enough to improve this state's tax code. Then the three can link arms and claim credit for their role in making it happen.

Pub Date: 9/21/96

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