Deferring taxes

May 03, 2007

When the state of Maryland wants to borrow money to build schools or jails or perhaps a new museum, it issues what are known as general obligation bonds. On each is an explanation that the debt will be repaid through revenues from the state's tax on property. That, of course, is a lie.

Or at least it will be this year. On a 2-1 vote, the state Board of Public Works this week decided to keep the state property tax at 11.2 cents for each $100 in assessed value rather than raise it to an even 12 cents. That will fall about $29 million short of what's needed to meet the capital debt for the coming year. That shortfall will have to be made up from elsewhere in the state budget.

Admittedly, that's a drop in the bucket of a $30 billion budget, and such supplemental funding of debt has been more common than not over the past several decades. But these are not ordinary times. As Treasurer Nancy K. Kopp, the board's lone dissenting voice, pointed out, the decision only aggravates (however slightly) a state structural deficit that will probably exceed $1.5 billion next year.

Gov. Martin O'Malley's explanation is that the property tax will be weighed as part of an overall approach to solving the deficit that is still under development. Further, he says, the property tax probably ought to be lowered because it hurts low and fixed-income families.

But the reality is that local property tax rates are the real culprit in that regard, not the state tax. And some of the measures being seriously discussed to close the deficit - particularly a 20 percent increase in the state sales tax - could be far more regressive. Poor people don't own waterfront mansions with skyrocketing assessments, but they do buy clothes and other necessities on which they pay sales taxes.

What's eight-tenths of a cent? About two tickets to the movies for the average suburban homeowner. Its significance is more symbolism than substance for Mr. O'Malley, who seeks to demonstrate a reluctance to pull the trigger on higher taxes - at least for now. But as a matter of policy, it was the wrong choice. Whether it plays any serious role in next year's much-anticipated tax reform remains to be seen.

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