Tax cut? On second thought, forget it

February 02, 1997|By Barry Rascovar

REMEMBER ALL THAT talk about an income-tax cut as the hot General Assembly issue this year? Forget it. That balloon is losing air so fast it could plunge back to Earth at any moment.

Reality is overwhelming the myths about the wondrous advantages and ease of implementing a 10 percent reduction in the income tax. Politics have conspired to work against any tax cut this year, too.

Gov. Parris N. Glendening sealed the death warrant for his plan by failing to come up with realistic long-range financing. In his state-of-the-state speech, the governor gave his tax cut brief mention. Since then, he has been invisible as skepticism mounts about spending $955 million over four years on a tax cut that might not produce the promised results.

House Speaker Casper R. Taylor's tax plan isn't gaining momentum, either. The speaker was late unveiling his financing details -- more equitable taxes on telecommunications firms and HMOs. There may not be time to educate legislators, especially in the Senate, about his approach.

Senate President Mike Miller's plan to underwrite a tax cut with slot-machine revenue from race tracks is getting a lethargic response. He's having trouble selling it to his own leadership; the governor pledges a veto. Slot machines and casinos aren't politically savory these days.

Why are lawmakers suddenly cooling on tax cuts?

Because they have finally seen the fiscal numbers (which aren't good) or the political costs (which could be high) or the social costs (which also could be high). Evidence grows that Maryland might not gain economic benefit by lowering its personal income-tax rate.

Perhaps the most damaging testimony came last week from an impartial outsider, Federal Reserve Vice Chairman Alice M. Rivlin. To draw businesses, and jobs, to Maryland, she suggested, investments in technology, especially at the University of Maryland, make more sense than a lower tax rate.

Business leaders also are expressing reservations. Stewart Bainum Jr., CEO of Manor Care Inc., wrote on this page last week, ''The mad political rush toward cutting taxes is foolish.'' Finding money to pay for such a tax cut will make investments in universities, public schools and other popular programs impossible, he noted, adding that the idea that Maryland is a high-tax state is just plain wrong.

We're No. 45

That point is driven home in a new study by the Johns Hopkins Institute for Policy Studies, which concludes that, in fact, ''only five states . . . devote a smaller share of their personal income to supporting state and local governments than Maryland.''

Will a tax cut produce more jobs? ''Empirical evidence does not support the conclusion that reductions in taxes would automatically stimulate more economic activity.''

The Hopkins report demolishes arguments being used to justify an income-tax cut this session.

Perhaps the main problem is that an income-tax cut would strip the state treasury bare in future years. There would be no funds for boosting technology initiatives at state universities, no funds to declare war on drugs and crime, no funds to accelerate road-building and mass-transit expansions.

And the return? It may not amount to much. The governor wants to forgo $450 million a year in tax revenues to generate 5,000 new jobs. Yet the state's Sunny Day Fund already produces as many jobs by spending just $27 million a year focusing on targeted business prospects.

Wouldn't it be wiser -- and far cheaper -- simply to double the size of the Sunny Day Fund? The number of new jobs would be roughly the same, but they would cost $423 million less each year.

Here's another idea to generate jobs and change Maryland's business reputation: Cut the state's corporate income-tax rate by 50 percent. Over four years, it would cost $530 million less than the governor's personal income-tax cut, but it would directly touch a company's bottom line.

For instance, Alex. Brown Inc. would save millions in 1996 taxes under this scheme; under the governor's plan, the investment firm doesn't gain a penny in tax relief.

A sharply lower corporate tax would be a wonderful tool in the quest for new companies, and a great incentive for in-state companies to expand in Maryland. That would be a sensible way to attack the jobs-growth issue, without the false hopes and flawed fiscal figures of the floundering income-tax plans fast fading from the top of the legislature's agenda.

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

Pub Date: 2/02/97

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