Time to tackle taxing issues

A broader sales tax could spur officials to consider a faster reduction in the income tax rate.

May 02, 1999|By Barry Rascovar

GOV. Parris Glendening and the General Assembly could have a problem of excess next year: So much surplus in the state treasury that they may not be able to spend it all.

If so, calls for bigger tax cuts will grow louder among state lawmakers. So will calls for overly ambitious new social programs.

Maryland's economy continues to exceed expectations and shows few signs of slowing down. And, thanks to last-minute General Assembly passage of a bill requiring property taxes to be paid on a semiannual basis, homeowners, who pay the tax through mortgage escrow accounts at banks and mortgage companies, will receive nearly a half-billion dollar refund in 2000.

By that time, the state's reserve funds are expected to contain $200 million above the amount needed to satisfy Wall Street bond-rating houses. On top of that surplus, by 2001, the governor and lawmakers must figure out how to spend some $300 million from the national court settlement with tobacco companies.

What to do?

Here's one idea that politicians have been reluctant to discuss: In this moment of prosperity, let's straighten out Maryland's outdated and unbalanced tax code. You can do this more easily in a time of surplus because you don't need to add more taxes -- just rearrange what we already have in a more logical fashion.

The last time a tax overhaul was attempted, Gov. William Donald Schaefer's ideas won little legislative support. One fatal flaw was the governor's apparent desire to use the tax overhaul simply to find new revenue for social spending.

You don't need to do that now. During these flush economic times, there is enough money to expand social programs, lower a host of taxes and bring the tax code into the 21st century.

Some states are courageously attempting this move. West Virginia is considering a total overhaul, with a single, low tax on all businesses replacing all other taxes on industries.

Said one member of that state's tax commission, "We have a patchwork of laws, many of them coming out of the Depression, that don't reflect the shifts going on in the economy. We want a system that will be stable for the 21st century."

Should Maryland have anything less?

Linowes commission

The last Maryland tax commission, headed by Montgomery County lawyer Robert Linowes, found state income taxes were far too high and the sales tax too narrowly targeted to reap the benefits of a service-oriented and technology-driven economy.

Attacking that imbalance now could put Maryland in great shape in the next few decades. If not, the imbalance will worsen.

Spreading the sales tax to include most businesses -- including services -- would make it a much fairer tax. Such a broad-based levy could lead state officials to reduce the tax rate from 5 percent to perhaps 4 percent.

At the same time, a broader sales tax could spur officials to consider a faster reduction in the income tax rates, putting them more in line with those in competing states.

Business taxes need a sharp overhaul, too. We continue to heavily tax old industrial sectors but not the service and technology sectors. Perhaps West Virginia has the answer -- a low tax paid by virtually all businesses.

The other problem confronting the governor next year will be finding more money to prop up the state's transportation trust fund. Rather than raising the gasoline tax by a nickel or a dime, why not dedicate a half-penny on the sales tax to transportation? In a time of prosperity, you can make such a maneuver work.

Spreading the burden

The goal should be for the state to raise the same amount of money, but to redistribute the tax burdens more evenly.

Such a step would have to come from the legislature; the governor has big spending priorities. He's not interested in tax cuts or tax reform. And so far, no legislator of stature has stepped forward as a champion of tax restructuring.

Let's hope someone does. Marylanders deserve a more up-to-date tax system.

Barry Rascovar is a deputy editorial page editor.

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