Tax cut plan looms Governor reportedly seeks to reduce state's personal income levy

Proposal expected today

Sources say he wants to offset cost by raising tobacco taxes

November 19, 1996|By William F. Zorzi Jr. and Michael Dresser | William F. Zorzi Jr. and Michael Dresser,SUN STAFF

Gov. Parris N. Glendening is expected to announce a plan today to reduce personal income taxes for Marylanders and to pay for the cut, at least in part, with increased taxes on tobacco products, sources said.

The amount of the income tax cut and the time period over which it would take effect remained unclear last night.

"There will be a major policy announcement, and that's all I can say at this time," said Judith F. Scioli, Glendening's press secretary.

But sources with knowledge of the plan confirmed the governor would propose the cut after first briefing legislative, business and education leaders this morning.

The announcement comes at a time when the state is faced with a budget shortfall of about $100 million and a pending court settlement to give the city of Baltimore $254 million in additional school aid over five years.

But the sources said the plan would account for those amounts, as well as for the reduction in the state's personal income tax -- the fifth-highest in the nation.

They confirmed that in at least the first year of the cut, the revenue lost would be absorbed by the state's Rainy Day Fund, a reserve that is expected to total $500 million by the end of the fiscal year in June.

The timing of the announcement also is critical politically to Glendening, whose low ratings among voters in opinion polls has prompted a host of state Democrats to weigh seriously a primary challenge to him in the 1998 governor's race.

A cut in the personal income tax is the No. 1 item on the wish list of the Maryland Chamber of Commerce and its chief advocate in the administration, Business and Economic Development Secretary James T. Brady.

The fervor with which business leaders have been seeking such a cut was displayed last month at the chamber's annual legislative conference, where Glendening's speech received a tepid response when he promised only to "take a look" at a reduction.

'Red flag' to executives

Brady has long argued that Maryland's relatively high personal income tax burden has been a "red flag" to executives from other states when they are considering where to locate facilities.

In recent months, Brady has dropped hints that he would not remain in the administration if Glendening failed to propose an income tax cut. The loss of Brady would be a severe blow to the administration because he is one of the few members of the Democratic administration who enjoys the confidence of the state's business leaders.

The strategic plan adopted by Brady's department has set an official goal of a 15 percent cut -- the same amount sought by the chamber -- but Brady has indicated that he would be willing to accept something less than that.

Nevertheless, the governor will be under pressure to at least match the cut of 10 percent over three years advocated recently by House Speaker Casper R. Taylor Jr., a potential rival in the Democratic primary for governor.

Taylor's plan, widely viewed as a pre-emptive strike at Glendening, did not include offsetting tax increases. However, it, too, depends heavily on dipping into the Rainy Day Fund.

Approach scorned

Glendening has publicly heaped scorn on that approach, contending that Maryland's hefty reserve fund has helped it maintain its Triple-A bond rating, which lets it borrow money at favorable rates.

The income tax cut issue has trailed Glendening since the 1994 election, when Republican Ellen R. Sauerbrey connected with voters by proposing a 24 percent cut over four years -- and came within 5,993 votes of defeating him.

Glendening said then that he would try to offer some type of cut in his first term as governor.

Taxing tobacco has long been discussed by some officials as a potential revenue source -- and one that would reduce tobacco consumption in the name of good health.

In fact, anti-smoking forces just last month pledged to seek a $1-a-pack increase in the excise tax on cigarettes when the General Assembly convenes in January. Such a proposal on its own, however, would face a tough fight in the legislature.

Pub Date: 11/19/96

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