Tax cuts, anyone? Huge surplus: Democrats in Annapolis rush to give constituents an election-year reward.

March 15, 1998

THOSE FOLKS knocking at your door aren't Ed McMahon and Dick Clark with a sweepstakes prize; they're Democrats from the State House showering you with election-year tax cuts. Thanks to a booming economy, there is lots of cash these politicians want to return to taxpayers.

But before the General Assembly and Gov. Parris N. Glendening empty the state's treasury of surplus cash, they must assess the long-range implications. Are they setting Maryland up for a return to giant shortfalls when the economy fizzles instead of sizzles?

Last week's revenue estimates confirm that Maryland is enjoying good times. Another $143 million was added to the projected tax collections over the next 15 months. This brings the total surplus estimate to $423 million.

That's a hefty chunk of change. A portion ought to be returned to taxpayers. Yet much of this surplus is a one-time phenomenon fueled by the historic rise in the stock market. Marylanders are cashing in some of their profits, which means a sharp jump in capital gains tax receipts. Only about $60 million in tax revenue from the latest estimate is viewed as a permanent increase in the state's income-tax base.

Thus, the governor and lawmakers ought to keep tax cuts in that $60 million range, so as not to create problems later. For instance, the state's income is rising at a 9 percent clip. But in 1999, the growth rate is expected to drop to about 5 percent. That might not be enough to sustain major tax cuts.

A prudent approach is in order. One possibility would be to make this year's tax cuts one-time rebates: If the economy continues to exceed expectations, the 1999 legislature could turn those rebates into permanent reductions.

Legislators also would be wise to use a good portion of this one-time surplus for one-time expenses. We suggest giving Maryland's food banks a substantial one-time boost, or setting aside money to help Eastern Shore chicken farmers meet proposed state mandates on manure use, or assisting Maryland's ailing dairy farmers, or giving each public school a one-time grant for computers.

We urge legislators not to get caught up in a tax-cut frenzy. This could do great harm to the state when the state's economy cools, or even plunges into a deep freeze. Give taxpayers a break this year, but don't place the state in future jeopardy.

Pub Date: 3/15/98

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