A painless way out of 'Tax Hell'

March 16, 1997|By Barry Rascovar

POSTURING OVER taxes and tax cuts has dominated the 1997 General Assembly session.

Yet this state's economy may not be sound enough to withstand a major income-tax cut without sharply curbing spending on schools, health care and economic development. Maryland's slow growth isn't generating sufficient new revenue to offset the loss of $300 million or more annually.

What prompted this tax-reduction mania was a long-standing wail from the state Chamber of Commerce about Maryland's punishing income-tax rate. For years, the chamber has kept up a steady drumbeat of criticism about Maryland's "tax hell."

Even though there are plenty of solid studies that argue this position is full of hot air, the chamber's constant clamor has helped create the impression among out-of-state executives that Maryland is anti-business.

Gov. Parris Glendening, trying to neutralize this issue before the 1998 elections, last fall realized his past hold-down of budget costs would produce a large one-time surplus for the coming year -- enough, he thought, to underwrite a 10 percent tax cut. It became Priority No. 1.

But that plan fell apart. The legislature's fiscal analysts looked over the governor's numbers and found them short by $500 million of balancing future budgets.

When one of Mr. Glendening's rivals, House Speaker Casper Taylor, put forth his own 10 percent tax-cut plan, the Chamber of Commerce withdrew its support because Mr. Taylor wanted to make up for the state's loss of revenue by imposing other taxes.

Then Mr. Taylor floated a 7-percent cut in the tax rate, which was lowered last week to 4 percent, spread over two years -- with a child tax credit thrown in. That's still hundreds of millions short of balancing over the long term.

Meanwhile, Senate President Mike Miller and Budget Chairwoman Barbara Hoffman fail to see the urgency. Sentiment among key senators is to do nothing, even in light of the governor's revised revenue estimates. They prefer using that extra $70 million on education or to bolster reserves.

More honest taxation

Here's a pain-free way out of this deadlock: Use smoke and mirrors.

Don't cut taxes, just pretend you're doing it.

Two bills in the General Assembly would actually accomplish this sleight of hand. And there's some logic behind the bills, too.

The first measure, pushed by Mr. Taylor, would base real estate property assessments on 100 percent of fair market value. Maryland now assesses property on 40 percent of market value -- which makes no sense. It confuses homeowners and makes it appear as though property tax rates here are far higher than in other states.

By using a 100 percent valuation base, local property tax rates would plunge -- though taxpayers would not see their bills change.

Suddenly, you could honestly and accurately compare property tax rates here with other states. That way, Montgomery County no longer would appear to have higher property taxes than Northern Virginia. Baltimore City's property tax rate would drop from $5.85 to $2.34 in a flash.

The second bill, sponsored by Ms. Hoffman, would de-couple the local "piggyback" income tax from the state income tax. The locals would collect the local portion themselves. Taxpayers write out two checks -- one to Louie Goldstein in Annapolis, the other to the county or city government.

This way, taxpayers would understand it's the "piggyback" portion of the tax bill that runs up the costs for them. In isolation, Maryland's 5 percent income tax rate doesn't look so bad.

Overnight, what business executives around the country would see is a sharp drop in Maryland's income-tax standing.

How can you call Maryland a "tax hell" when its 5 percent top rate is lower than Delaware's 7.1 percent, New Jersey's 6.37 percent, North Carolina's 7.75 percent, Ohio's 7 percent, West Virginia's 6.5 percent and Virginia's 5.75 percent?

Of course, taxpayers won't be saving money. The top combined local-state rate in Maryland would remain at 8 percent. But if you want to compare state taxes fairly -- as business executives apparently do -- this move would create a level playing field.

Call it "truth in taxation." Both bills would allow for direct comparison of tax costs here versus other states. That would be a far cheaper way of improving Maryland's business image and refuting the "tax hell" perception than a deficit-producing tax cut that most lawmakers would just as soon not enact.

Barry Rascovar is deputy editorial page editor of The Sun.

Pub Date: 3/16/97

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