Tax Structure

It was a little disappointing to hear Martin O'Malley's political opponents claim last week that the governor's legislative agenda is chock-full of new spending and not enough budget cuts. That's not because Maryland isn't facing a fiscal crisis - it certainly is - but because the criticism misrepresents the problem. There's relatively modest new spending in Mr. O'Malley's budget - aside from what is required by law - and there are substantial cuts. Overall, the growth of state government is set at a slower pace than during most of the last decade.

Tax reform can help state meet its needs An overhaul of Maryland's tax structure is long overdue ("Md. tax reform gains ground," Dec. 19). As Marylanders, we have collectively demanded many things from our state government - a great public school education for our children, affordable higher education, a cleaner Chesapeake Bay, a better transportation system including better mass transportation and a program to sustain farm and forested land. Doing all of these things costs more money than the state is collecting in revenue.

Despite projections of a looming fiscal crisis, a bipartisan committee of legislators recommended one of the largest state government spending increases of the past decade yesterday, saying the money is needed to pay for a landmark education funding program. The Spending Affordability Committee's mission is to suggest limits on increases to the state budget to prevent it from outpacing growth in the economy. But lawmakers conceded yesterday that the 7.9 percent increase they authorized for the fiscal year that begins in July is unsustainable over the long run, given that personal income growth in the state is expected to be about 5 percent or less in the foreseeable future.

Momentum is building in Annapolis for a comprehensive overhaul of Maryland's revenue structure -- possibly including increases to some taxes and cuts to others -- as a way to boost state revenue and solve the state's long-term budget problems. Legislative leaders met yesterday with Gov.-elect Martin O'Malley in Annapolis to discuss an agenda for the coming year, and top Democrats in the General Assembly indicated beforehand that they believe the tax structure -- essentially unchanged since the 1960s despite attempts at reform -- needs to be altered to reflect shifts in the state's economy.

After three years of recession and frustratingly slow growth, there is broad agreement that 2004 will be a great year for the American economy. But if profits, productivity and stock prices are on the rise, so are concerns about the nation's economic future. As some experts see it, the grinding power of capitalism combined with demographic forces already visibly in play are undermining principles of social justice and fair play that define the American way of life. Globalization is changing the basic economic equation -- sending growing numbers of manufacturing and service jobs abroad, while rising health-care costs are squeezing consumers and a mounting federal deficit is threatening the retirement futures of millions of baby boomers.

FOR AT LEAST 20 years, Maryland's political leadership has known the state's tax system needs modernizing - and failed to provide it. House Speaker Benjamin L. Cardin, now a congressman, wanted to do it. Other issues - including his interest in being governor - got in the way. Candidates don't necessarily want to be advocating changes that could increase as well as modernize taxes. As governor, Comptroller William Donald Schaefer wanted to revamp the system in the late 1980s. He talked about the state's unmet needs.

WHILE PARING $208 million from Maryland's budget, Gov. Robert L. Ehrlich Jr. has illustrated the limits of cutting as a solution to the state's long-term financial problem. The newest round of cuts, announced Wednesday, make it painfully clear that new or higher taxes must be part of the budget-balancing equation. Without more revenue, Maryland faces years of catastrophic deficits - $1.8 billion per year by 2007. Projected tax receipts are expected to be outpaced by built-in spending commitments for public schools, health care for the poor and other needs.

WOULD-BE TAX-CUTTERS in Congress are currently engaged in an unfamiliar exercise. They are desperately trying to find fees they can raise or loopholes they can close so taxes they want to cut won't mean a net loss of revenue. But as The Sun's Julie Hirschfeld Davis reports, the most those cockeyed optimists think they might be able to produce in such "pay-fors" is $50 billion - nowhere near the extra $200 billion in taxes over 10 years some would like to cut. What's particularly illuminating - and galling - about watching the lawmakers sweat out trying to bring this relatively small feature of the budget into balance is that they have all but abandoned the cause of deficit reduction as a general proposition.

The task force charged with figuring out how to pay for Maryland's future needs began work yesterday on a process that could result in recommendations for higher taxes. The 17-member commission, created by the General Assembly this year, is to review the state's tax structure and other revenue sources with an eye toward identifying enough money to cover transportation, education and health care demands. Potential solutions to be discussed likely will include increasing the sales or gasoline tax, expanding the sales tax to apply to additional services, and legalizing slot machines.