Sure, we'd all like a tax cut, but . . .

November 24, 1996|By Barry Rascovar

SOMEWHERE BEYOND those ethereal pearly gates, Jack Cade is enjoying a hearty laugh.

Mr. Cade, the gargantuan budgetmeister of the Maryland Senate, was buried last week. A larger-than-life character who knew how to spot flaws in budget proposals better than anyone in the General Assembly, he'd be having a field day with Gov. Parris Glendening's tax-cut plan.

There's not much dispute about the benefits of a tax cut. The controversy swirls around the governor's fiscal assumptions and the strength of the state economy.

This tax-cut plan is a political document. Mr. Glendening needs to rob Republican Ellen Sauerbrey of this issue before the 1998 gubernatorial election. But in piecing together his proposal, the governor fell into some familiar traps. He'll have to answer for fuzzy assumptions that are similar to the flaws in Ms. Sauerbrey's 24 percent tax-cut plan of 1994.

The fourth year

''He's one year short of full disclosure,'' said Bill Ratchford, the legislature's fiscal analyst. The full impact of the tax-cut plan doesn't hit till Year Four, yet the governor provides a budget strategy covering only three years. What happens in Year Four? Mr. Ratchford says there will be a $422 million shortfall.

Mr. Ratchford also says the governor uses a rosy forecast for the state's economic growth that is nearly 1 percent higher than his more cautious assessment. That adds another $132 million to the fourth-year shortfall.

Money to settle the Baltimore school litigation doesn't seem to have been factored into budget calculations. On a four-year basis, that adds another $180 million to the deficit.

The governor wants to double the cigarette tax, which is already a declining source of revenue. While the price of his income-tax cut grows every year, the revenue coming in to pay for it from the tobacco tax shrinks.

A rainy day

Try as he might, the governor cannot repeal the business cycle. We are already in one of the longest growth periods of this half-century. It likely will end before the Glendening income-tax cut is fully implemented. Recession means a slump in state tax revenues and a rise in state expenses. He has made no provisions for such an occurrence.

The governor is also plunging ahead with other initiatives that will be costly to the state down the road, such as a new entitlement program involving free tuition for thousands of Maryland college students and higher pay for state workers under his collective bargaining order.

None of the ''budget savings'' is specified. By the governor's count, he must cut $257 million over three years. Mr. Ratchford says the four-year figure is $698 million. That would entail major reductions in state programs -- or hiking other taxes after the next election.

''How in the hell are we going to pay for it?'' asks one county executive. He says an income-tax reduction would help change Maryland's business climate but that ''it's just one factor among many'' in luring jobs to this state.

Far more important for spurring economic growth, the executive claims, is putting more money into education and roads.

Regulatory environment

Another county executive says that business leaders looking for sites are concerned mainly about the state's regulatory environment. Never once in this executive's tenure has one of these corporate leaders even mentioned Maryland's income-tax rate as a relocation consideration.

Then there's the inequity problem. While a policeman making $25,000 in the year 2000 would save in state taxes just $62 ($1.19 a week) under the governor's plan, someone earning $1 million would save $4,020 ($76 a week).

Even without Jack Cade to batter this proposal into submission, the legislature won't be gentle. The Senate president deeply dislikes higher tobacco taxes; the House speaker has his own ideas on how to cut taxes; the House budget committee chairman wants to increase personal exemptions instead of lowering the income-tax rate, and the Senate budget committee leader isn't at all sure the state can afford it.

Once again, Mr. Glendening has made a fundamental mistake: He formulated his program on his own, ignoring the legislature. He further infuriated lawmakers by informing them of his proposal only hours before his announcement, where he alone gloried in the public spotlight. Now lawmakers are determined to tear his flawed plan apart, piece by piece.

We are still likely to have an income-tax cut, but what comes out of the legislature next April probably will bear little resemblance to the plan the governor so proudly unveiled on his own last week.

Barry Rascovar is deputy editorial-page editor of The Sun.

Pub Date: 11/24/96

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