Assembly cuts taxes 10 percent Phased reduction will take effect over five years

Governor expected to sign

Race to adjournment leads to push to aid families, job growth

April 04, 1997|By C. Fraser Smith | C. Fraser Smith,SUN STAFF

The General Assembly handed Marylanders a first-ever income tax break yesterday, giving final approval to legislation that provides a 10 percent cut over five years in an effort to promote job growth and allow families to keep more of what they earn.

After wrangling for most of the past three months over whether and how to provide tax relief, a House of Delegates committee approved the Senate's plan without debate, rushed it to the House floor and passed it by a vote of 111-24.

The sudden speed grew from a desire among House leaders to pass a tax cut before the Assembly adjourns at midnight Monday -- and in the face of a willingness in the Senate to scuttle any bill but its own.

The legislation goes now to Gov. Parris N. Glendening, who is certain to sign it.

The cut will be phased in over five years, partly by reducing the current 5 percent rate paid by all Maryland taxpayers while targeting relief to low- and middle-income families by making more of their income exempt from taxation.

Even in 1998, the first full year of the cut, a single individual earning $25,000 will see a reduction of just $19 from the current rate; a single person with income of $60,000 will get $24. A family of four earning $40,000 will save $52 in 1998, while a family of four earning $100,000 will save $57.

By the fifth full year in 2002, the annual savings will be $104 for a single person earning $25,000 and $127 for one making $60,000. The family of four earning $40,000 will save $291; the family of four with income of $100,000 will save $307.

Because the cut will be phased in, taxpayers will not feel a jolt of new cash flowing into their accounts at refund time. The bill will become effective July 1, so taxpayers will get only a half year's benefit when they file returns next year.

For Glendening, who made the tax cut a centerpiece of his legislative package, the bill's passage represents a victory that sometimes seemed in doubt.

"The action taken this afternoon by the House of Delegates is great news for Marylanders and for our continuing efforts to improve Maryland's business climate," he said.

House Speaker Casper R. Taylor Jr., who has been urging an income tax cut for several years, said, "Maryland will now be recognized as one of those states that is serious about business and serious about job growth."

The bill -- which will cost the treasury $500 million a year when fully implemented -- also asks something new of the taxpayer.

Enacted in 1937, Maryland's tax rate has gone up but never down. For the first time, two checks will have to be written -- one to the state and one to local governments which impose a "piggyback" income tax, now collected by the state. The taxpayer currently includes both in one check.

The two-check idea aims to eliminate an impression that the tax burden in Maryland is greater than in other states. If two checks are written, one to the state and one to the local government, businesses thinking of locating in Maryland will have a more accurate view of the state's tax climate, officials say.

However salutary that change may be, it did not make Comptroller Louis L. Goldstein happy. To process 1.6 million more checks, Goldstein has warned, the state will spend $1 million in the first year and $200,000 per year thereafter. Lawmakers apparently felt the expense was justified.

Though much effort -- and anguish -- was expended on finding ways to boost income from other tax sources, the Assembly finally concluded that it had to pay for an income tax cut through budget reductions and, perhaps, growth in the state's economy. Questions remained in the minds of many delegates about whether those two sources will prove adequate.

Though only 24 delegates voted against the bill -- risking the need to explain to voters why they opposed a tax cut -- some who voted yes had fundamental difficulties with the bill. They questioned whether a cut that lowers Maryland's tax rate from 5 percent to 4.75 percent over five years would really stimulate business growth.

"It's a farce," said Del. James W. Hubbard, a Prince George's Democrat, who said the House's version had been a more measured, fiscally responsible one.

But representatives of the business community, who have labored for more than three years to get the cut, were pleased.

"The number of jobs created is not something that needs to be quantified," said Gary Alexander, a lobbyist for the Maryland Chamber of Commerce. "It sends a message with a good feeling about doing business in Maryland."

Particularly welcome, said the chamber's executive director, Champe C. McCulloch, is a provision added to the bill by the Senate providing a $38 million per-year rollback of the tax on production materials and equipment purchased by manufacturers. Since other states don't impose such a tax, removing it in Maryland was "critical," McCulloch said.

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