Md. surplus spurs talk of tax cuts Senators raise hopes of accelerating income tax reduction

$260 million left over

Delegates prefer proposal to reduce state property levy

January 06, 1998|By Thomas W. Waldron | Thomas W. Waldron,SUN STAFF

With Maryland enjoying a robust economy and a healthy budget surplus, a key senator is proposing that the state accelerate the income tax cut passed last year to give taxpayers quicker relief.

Sen. Barbara A. Hoffman, chairman of the Senate Budget and Taxation Committee, said yesterday it might be fiscally feasible to reduce the phase-in period for the tax cut from five to three years.

"I really think a good use of that [state budget] surplus would be to accelerate the tax reduction to the citizens," said Hoffman, a Baltimore Democrat. "If we can speed up the tax cut, people will see it immediately in their paychecks."

The General Assembly approved a 10 percent cut in the state income tax last year, with the reduction to be phased in at 2 percent a year over the next five years. The first 2 percent drop went into effect Jan. 1.

A typical family of four with an annual income of $40,000 will see its state income tax go down by $52 this year.

The state budget, which totals nearly $16 billion this year, has a surplus estimated at $260 million. Gov. Parris N. Glendening and lawmakers have been exploring a number of ways to spend that money, bank it, or return some to taxpayers -- decisions that will be made during the Assembly's annual 90-day session that begins next week.

Hoffman said neither she nor her tax-writing committee has made a decision on accelerating the tax cut. She said she has asked the legislature's analysts to study the idea and develop an extended forecast of its implications for the state budget.

Glendening will propose his plan for dealing with the state surplus within two weeks.

State House sources say it is not likely to include an accelerated tax cut.

But a key Republican on the budget committee, Sen. F. Vernon Boozer, said Hoffman's idea "sounds good to me."

"You need to put money in people's pockets," said Boozer, the Senate Republican leader and one of the authors of last year's tax cut legislation. "It certainly helps spur the economy."

But Boozer, a Baltimore County Republican, said he, too, would have to study the fiscal projections before agreeing to accelerate the tax reduction.

The legislature's fiscal analysts are forecasting that the state's general fund will maintain large surpluses for the next two years before running into trouble.

By 2003, when the income tax cut is fully enacted, the projections show the state facing a deficit of more than $500 million.

Any proposal to accelerate the income tax cut could run into trouble in the House of Delegates. Leaders there are also considering tax relief, but are focusing instead on reducing the state's property tax rate.

Their plan would cut the state rate from 21 cents per $100 of a property's assessed value to 16 cents, a proposal that would mean a savings of about $59 million for property owners.

"We've considered the best way to get some money back into people's pockets, and we're targeting homeowners in the state," said Del. Howard P. Rawlings, a Baltimore Democrat. "It's not that much money, but that's what we believe we can afford."

Hoffman said she is opposed to a cut in the state property tax rate.

"It only would help property owners, whereas the income tax cut helps a broader group of people," Hoffman said.

The political choices posed by the Maryland budget surplus mirror debates in many other states across the country -- with such surpluses, however temporary, becoming increasingly common.

Pub Date: 1/06/98

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