Governor would speed up tax cut Glendening says Maryland can afford another 5% next year

October 21, 1998|By JoAnna Daemmrich and Greg Garland | JoAnna Daemmrich and Greg Garland,SUN STAFF Sun staff writer Thomas W. Waldron contributed to this article.

With revenues pouring in faster than expected, Gov. Parris N. Glendening is proposing to speed up the state's income tax cut to give Marylanders an additional 5 percent break next year.

Glendening said yesterday that he believes Maryland can afford to enact the second half of its 10 percent income tax cut in one year instead of over several.

"It looks like we'll be able to accelerate that," he said after new state revenue projections were released. "Instead of phasing it in over three years, we would do it at once next year.

"Obviously, we're very pleased because it reflects the strength of the economy."

Glendening's call for speedier tax relief comes just two weeks before the Nov. 3 general election as the Democratic governor is locked in a tight re-election race against Republican Ellen R. Sauerbrey, who has made a pledge for deeper tax cuts a centerpiece of her campaign.

Sauerbrey has insisted the state did not go far enough when a phased-in, 10 percent income tax cut was approved last year.

The tax rate initially was to be lowered over five years, but Glendening and the legislature accelerated the cut to give Marylanders the first half -- a 5 percent reduction -- in their returns for 1998.

Four years ago, Sauerbrey's galvanizing call for a 24 percent cut in personal income taxes nearly swept her into the governor's mansion.

Though she has moderated her message and embraced several spending programs this time, Sauerbrey is again campaigning on the tax issue. She has promised to follow the Democrats' 10 percent cut with an additional 14 percent reduction, starting with a break for retirees who have more than $15,900 in annual income.

"I'd remind you that we're looking at a huge surplus," Sauerbrey told the High Technology Council in Montgomery County yesterday. "We've cut taxes already without breaking a sweat, and I intend to do more."

Her campaign later released a statement on accelerating the 10 percent reduction: "Parris Glendening has been saying that Ellen Sauerbrey's tax cut proposals are reckless. Now he wants to join on her bandwagon," said Carol Hirschburg, a Sauerbrey spokeswoman.

Until now, Glendening has been reluctant to make specific commitments to future tax reductions, saying the state should hold off to make sure the economy remains strong and to protect spending on education and other key services.

Even as he called for speeding up the tax cut, Glendening said he wanted to be cautious and noted it could be done only if the next quarter's revenue estimates remain as robust.

The state is on track to finish the financial year with a surplus -- on top of the $117 million carried over from last year.

If Maryland's economy remains as healthy as today, Glendening said, he would divide future surpluses equally between tax relief and one-time construction expenses, especially to renovate and build schools.

Fueling Glendening's tax pitch were new figures from legislative budget analysts showing higher-than-anticipated income tax collections, largely from capital gains that exceeded projections as the stock market soared.

Maryland is now on course to end the fiscal year that began July 1 with a $94 million surplus, budget analysts told the General Assembly's Spending Affordability Committee yesterday. The committee reviews projections of spending, revenues and the status of the state economy.

The analysts told the committee that they now expect the state to take in $8.2 billion this fiscal year -- $173 million more than projected when the budget was adopted.

However, the analysts estimate $79 million of that will be needed for budget gaps, including higher-than-expected Medicaid costs and solving Year 2000 computer system problems.

The overall good news was tempered by projections that the surpluses will disappear in future years because of revenues lost to the tax cut and an economic slowdown nationally.

In fact, based on current spending plans, the analysts are projecting budget shortfalls beginning at $87 million next year and growing to $638 million in 2004.

But Warren G. Deschenaux, the General Assembly's chief fiscal analyst, said the shortfalls can be overcome through budget cuts and a "prudent" use of the state's reserve funds.

Under Glendening's proposed acceleration, Marylanders would receive an additional 5 percent income tax cut in 1999, on the heels of the 5 percent reduction that went into effect this year.

For a typical family of four earning $40,000, the first 5 percent cut will reduce this year's tax bill by $130 compared to 1997.

If the legislature agrees to move up the plan, tax savings in 1999 would be an additional $130 for that family. Without the acceleration, that family would be slated to save about $26 next year.

Enacting the full 10 percent cut by next year will cost the state about $160 million in lost revenue next year.

Sen. Barbara A. Hoffman, a Baltimore Democrat who chairs the Senate's Budget and Taxation Committee, said she wanted to review the latest budget figures further before reaching a conclusion on whether the tax cut could be accelerated.

"We are certainly open to it, but we have to make sure the numbers work," Hoffman said. "That's the bottom line."

House Minority Leader Robert H. Kittleman said he was not surprised that Glendening was now espousing a tax cut in the final weeks before the election.

"We dragged him kicking and screaming into the first tax cut," said Kittleman, a Howard County Republican.

"I guess he saw the handwriting on the wall quicker this time."

Pub Date: 10/21/98

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