January 29, 1997|By Stewart Bainum Jr.
ELLEN SAUERBREY'S 1994 plan for a 24 percent tax cut, and her resulting razor-thin loss to Parris Glendening in that year's general election, transformed Maryland's political ideology. Many prominent Democrats who had opposed Ms. Sauerbrey's cuts jumped on the tax-cutting bandwagon. Too many Democrats accept the notion that tax cuts in Maryland aren't a matter of ''if,'' but of ''when.''
Considering the importance of this decision, it should be a matter of ''if'' -- ''if'' we can afford the fiscal and social costs of the loss in revenue to the state government. Before any tax cut becomes law, legislators should be able to answer convincingly the following questions:
What will be the impact on the economic health of our state?
Where exactly will the state budget have to be cut?
Are the reductions in taxes and spending fair to Marylanders?
Listening to many politicians and business leaders, one would think Maryland is among the highest-taxed states in the country. In fact, our state and local taxes are below the national average as a share of personal income. A recent index issued by the Small Business Survival Foundation, a pro-business think tank, ranked Maryland as the 23rd lowest-cost state in which to do business -- only 22 states are lower.
As Sen. Barbara Hoffman has aptly pointed out, our sales tax ranks 46th, the property tax 35th and the corporate tax 46th in the country. Certainly, when it comes to taxes, less is preferable to more. But there is no clear and convincing emergency that requires haphazard tax-cutting without regard to the future fiscal and human impact of such cuts.
Another issue that needs to be addressed is the fiscal bottom line. Every cut in tax revenue needs to be compensated for with a budget cut. The state cannot rely on rosy economic forecasts of future increases in revenue. We are in the sixth year of an economic expansion, and it is irresponsible to assume that there will be no slowdown or recession during the next few years.
Dr. Pangloss' mantra
The General Assembly needs to look at the long-term impact of any proposed budgetary cuts. We do not, to paraphrase Candide's teacher, Dr. Pangloss, live in the best of all possible worlds. Deficiencies in Baltimore's educational system have caused the governor to propose adding $254 million in state aid to city schools. The federal government's experiment with welfare reform has already shifted to the state budget the cost of aid to legal immigrants, and future federal cuts will further increase the burden on Maryland's budget.
Where will spending cuts come from in a budget already strained by aid for school and stadium construction? Will there be further cuts in aid for the disabled? Or in aid to the counties? These questions need to be debated thoroughly prior to implementation of a tax cut. It makes no sense to chop the revenue stream and then end up having to make ill-timed and unnecessary state budget cuts.
Finally, General Assembly leaders should ask whether a proposed tax cut furthers the progressivity of the state's tax system. According to the Assembly's fiscal analyst, about 40 percent of the governor's proposed tax cut would go to the wealthiest 10 percent of the state's taxpayers. To the extent taxes are cut at all, the cut should be targeted to working-class taxpayers -- those who struggle to pay their bills and save something for retirement.
The mad political rush toward cutting taxes is foolish. After all, the election for governor will be over in 1998, but the impact of a tax cut will stay with us long after the returns are in. The state's taxpayers don't deserve to be left holding the bag for a political gimmick gone awry.
Stewart Bainum Jr., a former state senator from Montgomery County, is chief executive of Manor Care, Inc.
Pub Date: 1/29/97
