For two years, the state's business leaders have made it their No. 1 goal to cut Maryland's personal income tax rate.
Over the next two months, those same business people - walking shoulder to shoulder with Gov. Parris N. Glendening - will finally have a chance to sell the idea to a somewhat skeptical General Assembly.
In the most significant policy announcement of his first two years in office, Glendening last fall laid out the case for a tax cut.
While the state's economy has been growing moderately, job creation has lagged, the governor said.
"The only drag on the Maryland economy is that our rate of new job growth is too low," Glendening said in announcing the tax cut in November. "Economic advisers and business groups alike say our future job growth depends on our lowering the personal income tax rate."
Under his plan, the state's rate of 5 percent would decrease to 4.5 percent over the next three years, a 10 percent cut overall. Although he didn't mention it, the idea would surely appeal to many voters when the 1998 gubernatorial election rolls around.
But in Annapolis, legislators have raised questions about the proposal, and early signals suggest a tough fight to get a tax cut enacted before the General Assembly adjourns in April.
The concerns are many.
Can the state afford it? In the Senate particularly, key legislators say Glendening's plan could put the state in a fiscal hole once it is fully in effect in the fourth year. At that point, the proposed tax cut would translate into a loss of nearly $450 million in revenue, a significant chunk of the state's general fund, which stands at $7.4 billion now.
Compounding the problems are Glendening's list of initiatives he wants enacted - including a major scholarship program for the middle class and expanded health care for women and babies.
"If we could rescue the personal income tax, it would be a benefit," said state Sen. Barbara A. Hoffman, a Democrat from Baltimore and chairwoman of the Senate budget committee. "But I have to feel confident that it can be paid for, and I don't mean with this amorphous, pie-in-the-sky idea that you'll find something to cut."
Some legislators argue that Glendening's cut would make the state's marginally progressive income-tax rate structure less so. The cut would, of course, provide more tax savings to those Marylanders at the top end of the income scale.
To some legislators, the prospect of cutting social programs to pay for a cut that gives the greatest benefit to the state's wealthiest is an unappealing one.
"I personally believe that our taxes ought to provide significant relief to the middle class, where we put most of the burden," said Del. Howard P. Rawlings, a Baltimore Democrat and chairman of the House Appropriations Committee. "That's going to be one of the key debates."
Why look at income taxes in a vacuum? The state should examine its overall taxation system, say many lawmakers, particularly in the House of Delegates.
House Speaker Casper R. Taylor Jr., an Allegany County Democrat who supports an income tax cut, has proposed coupling it with an expansion of the sales tax to apply to some services. "I think our goal is to fine-tune and modernize our tax system," says Taylor.
Finally, key legislators in both the House of Delegates and Senate have raised objections to the only ongoing source of new revenue considered by Glendening to use to pay for the tax cut - a 100 percent increase in the state's 36 cents-a-pack tax on cigarettes. The Assembly seems ready to approve only a much smaller increase, which in turn makes it harder to cut the income tax.
Glendening has stayed remarkably unruffled by the criticism. The state, he says calmly, can easily afford an income-tax cut - even with enactment of his spending initiatives. "To say that these programs are not affordable is a gross exaggeration," Glendening says of his proposals.
While they have disagreed with the governor on other issues, state business groups, including the Maryland Chamber of Commerce, have enthusiastically backed his income-tax proposal.
As the legislature holds hearings on the tax issue over the next few weeks, lawmakers will hear from economists and business leaders on one side, and advocates for social and spending programs on the other.
But perhaps the loudest voice will be that of a one-time Republican colleague, former Del. Ellen R. Sauerbrey, who came within 6,000 votes of defeating Glendening in 1994. Her platform centered on her pledge to cut the state's income tax rate by a full 25 percent - an idea derided by candidate Glendening but one that apparently resonated with many voters.
It seems unlikely that the Democratic governor and the Democratic leaders of the Assembly relish going into the 1998 elections without a tax cut of their own to counter Sauerbrey if she, as she is widely expected to do, runs again for the state's top job.
Pub Date: 1/19/97
