First fix the budget, then cut taxes

December 15, 1996|By Barry Rascovar

CUT THE INCOME tax! To hear business lobbyists tell it, the clamor for a lower tax rate in Maryland is deafening. It is the path to economic growth.

Conservative Democrats and Republicans have united. So has Gov. Parris Glendening, the state's leading liberal. But that grass-roots support for a tax cut just isn't there.

A special House committee traveled the state holding hearings on cutting taxes. The public response was underwhelming.

Bob Dole ran for president primarily on a tax-cut platform. He got 38 percent of the state vote.

Ask people what should be at the top of government's priority list, as the Wall Street Journal did last week, and the answers are education, crime, deficit reduction and jobs -- not lower taxes.

Governor Glendening is proposing a phased-in, 10 percent income-tax cut. It would make Maryland competitive in the race for jobs, he says. By using a $214 million reserve fund and doubling the cigarette tax, he says it is affordable.

There's a flaw in that argument. While the governor can pay for his tax cut between now and election day in 1998, he creates a black hole for the post-election years. In other words, the state can't really pay for his modest tax cut. Even with a higher tobacco tax and three-year reductions in programs of $257 million, the Glendening plan falls $416 million short of balancing the budget when his income-tax reduction is fully implemented.

That's a huge fiscal gap -- four times the amount cut by the legislature from the current budget.

Even worse, the gap keeps growing because Maryland's structural deficit continues to mount each year as slow-growing revenues fail to keep pace with higher spending for education, public safety and entitlements.

If the General Assembly were to follow the wishes of the business lobbyists and tax-cut devotees, it would be a tragic mistake that Marylanders would be paying for far into the next decade.

The irony is that conservatives and Republicans are leading the charge for a tax cut that could ruin the state's credit rating and harm good programs. You would think they would be the last ones to put the state's fiscal house in peril.

"Pump priming"

Instead, they are intent on ''pump-priming'' the economic-development engine by creating a deep budget deficit in the hope of spurring new business interest in Maryland. It sounds like wishful liberal thinking, not hard-nosed conservative bookkeeping.

True conservatives ought to be demanding that Mr. Glendening and other tax-cut advocates first make some tough decisions to eliminate Maryland's structural deficit. The legislature's staff estimates the gap between revenues and spending over the next four years at $1 billion.

Why add to that burden by implementing a tax cut plan that would increase the cumulative deficit to $2 billion?

A way to start fixing this problem would be to enhance, not diminish, state revenues. The tobacco-tax proposal is a sensible move for health reasons (a four-year pick-up of $380 million). Extending the state's sales tax to repair services would produce another $488 million over four years.

Combine these moves with four-year cuts in spending of roughly $320 million and then the state would be in a position to honestly balance its books by the 2001 budget year.

That, of course, assumes no initiatives from the governor or legislature. No free college tuition for B-average students; no expansion of Medicaid benefits to low- and middle-income women and children; no extra State Police salary raise above a 2 percent-a-year increase for all state employees.

But at least Maryland would be able to claim -- a year ahead of the Gingrich-Clinton 2002 deadline for a federal balanced budget -- that it can actually pay for state government without resorting to fiscal sleights-of-hand.

State legislators need to take a long-range view of Maryland's fiscal picture. Yes, the state can pay for the first few years of an income-tax cut by wiping out its reserve fund set aside to help lower taxes (and to guard against big reductions in federal aid). But to approve a plan for lower taxes that would mean giant deficits down the road would be irresponsible.

Political leaders are focusing on the wrong issue. Marylanders understand the urgent need to balance the budget. It's the conservative thing to do.

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

Pub Date: 12/15/96

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