Go slow on cutting taxes General Assembly: Election-year tax cutsignore fact that good times don't last forever.

March 01, 1998

IN AN ELECTION year, politicians will go to extremes to cater to the voting public. Especially on taxes. They try to cut taxes sharply just before voters go to the polls. This rush to look good at election time has now hit the State House in Annapolis.

Gov. Parris N. Glendening and Senate leaders want to accelerate a five-year income-tax cut approved last year. The cost: an extra $80 million this year and a total of $320 million over five years. Their rationale is that Maryland's tax revenues are flowing in much faster than expected. This year's surplus could be far larger than the $283 million already anticipated.

But is a permanent tax cut the best way to handle a one-time surplus?

No.

Until state officials are sure that surges in tax receipts are permanent and not just temporary blips during boom times, they must resist the urge to cut taxes sharply. What happens when the good times end, when tax revenues flatten or even fall? A tax cut that looks so affordable now could quickly become a burden.

The last time Maryland's economy boomed, the state had a $227 million surplus in 1988. But two years later, the state was battling huge deficits as the recession hit. The good times didn't last. They never do.

If state leaders want to sensibly dispose of surplus cash, there are two routes they might take that will not create future obligations. First, the governor could dramatically increase pay-as-you-go spending for government construction projects on the drawing board. This would reduce the need to issue costly government bonds for these projects, saving taxpayers 15 years worth of interest payments.

Second, a one-time reduction in the state property tax could be approved, setting aside enough surplus cash to cut the tax rate by 5 cents ($56 million) or even 10 cents ($112 million). House leaders are pushing just such a proposal. Its advantage is that this cut in the property-tax rate could be adjusted each year, depending on the economic outlook.

Lawmakers ought to take a go-slow approach. If tax revenues remain this strong a year from now, larger tax cuts would make sense -- especially because they would help improve Maryland's economic competitiveness. Acting impetuously, though, for political reasons, could prove harmful.

It is easy for politicians in flush times to be generous in returning tax dollars to constituents. But it also is easy for them to get carried away when an election is just six months off.

Pub Date: 3/01/98

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