Pay Now or Pay Later

Just get ready to pay more taxes in Maryland.

WHEN MARYLAND Gov.-elect Martin O'Malley announced last week that T. Eloise Foster was his choice to be the state's budget czar, he lauded her as a "courageous soul." Well, let's hope so, because the state's fiscal problems are gathering like thunderheads. Despite Mr. O'Malley's dismissive treatment of projected deficits during the fall campaign, it seems increasingly likely that his term in office will be marked not by the hundreds of millions of dollars in initiatives and new spending he liked to talk about on the stump but by his ability to manage and contain shortfalls estimated to run into billions of dollars.

Sensibly, Mr. O'Malley, who takes office next month, has not ruled out new taxes, which will inevitably be part of any solution to a fiscal problem on the scale of Maryland's. But he seems determined to defer a major push on revenue until his second year in office, perhaps by naming a commission to "study" the problem. It may be the case that he wants to get his political sea legs before embarking on what could be one of the toughest fights of his term. And in mathematical terms, he may be able to get away with holding off for a year on raising taxes, since leftover surpluses from the recent boom times will cover the still-modest shortfall expected in the fiscal year starting next summer. Still, Mr. O'Malley is looking increasingly cavalier, and possibly foolish, to postpone a serious reckoning.

The original sin of what is referred to in Annapolis as the state's "structural deficit" was an income tax cut sponsored by then-Gov. Parris N. Glendening nearly a decade ago that made no distinction between rich and poor and has since cost Maryland billions in lost revenue. The irresponsible Glendening cut -- an act of political expediency designed to stave off a conservative challenge to his reelection -- was compounded five years later by a huge, legislatively mandated increase in education spending for which no funding source was specified. Thanks to the housing boom and Maryland's generally sunny economic climate, disaster has been kept at bay for the past few years, despite soaring Medicaid costs. But now the bill is coming due: Starting in 2008 the state's annual revenue shortfall is expected to reach $1.6 billion, or about 10 percent of anticipated spending. Mr. O'Malley can talk of shaving programs, trimming waste and optimizing efficiencies all he wants, but that will not solve a problem of such dimensions.

What's needed, as we've written before, is a top-to-bottom revision of Maryland's obsolete tax system, conceived in the 1960s and barely updated since then. The elements of such an overhaul might include a more progressive personal income tax, since the current one is virtually flat and therefore favors the rich; tougher corporate income tax collections to eliminate shelters; an increase in the gas tax, last raised 15 years ago, to yield badly needed funding for the state's roads and mass transit; and a levy on services, most of which remain inexplicably untaxed even though they constitute the backbone of Maryland's economy.

Certainly, there are pitfalls facing Mr. O'Malley as he contemplates such changes. The state Senate president, Thomas V. Mike Miller Jr. (D-Calvert), might subvert any attempt at tax reform by tying it to his pet project of expanding slot machine gambling -- a potential deal killer. Republicans in the General Assembly would doubtless object to any significant tax increase, as might some Democrats. But sooner or later, Mr. O'Malley will have to come to grips with the state's projected funding shortfall, so why not sooner?