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  •   Sauerbrey Wants Tax Cut For Retirees

    By Robert E. Pierre and Daniel LeDuc
    Washington Post Staff Writers
    Sunday, August 16, 1998; Page A01

    Maryland gubernatorial candidate Ellen R. Sauerbrey this week will propose a plan to more than double -- to $33,000 a year -- the amount of retirement income that would be exempt from state income taxes for residents 65 and older.

    The Republican front-runner said the move is meant to stanch the migration of the state's elderly to places like Florida and Pennsylvania, which have more attractive tax policies toward elderly residents. It's also an attempt to rekindle the enthusiasm for tax cuts that nearly won Sauerbrey the governor's seat in 1994 and propelled Virginia Gov. James S. Gilmore III (R) into office last year after he pledged to eliminate that state's car tax.

    Like most states, Maryland already exempts Social Security payments from state taxes. Sauerbrey's plan would extend the benefit to most other forms of retirement income, including annuities, individual retirement accounts and 401(k) plans.

    The tax cut would help more than 234,000 residents and result in savings of up to $900 for a retiree with an annual income of $33,000, campaign officials said. They said the plan would reduce state revenue by $210 million during the next budget cycle -- an action Gov. Parris N. Glendening's budget director called "reckless" because those funds already are earmarked for other purposes.

    Sauerbrey, however, contends the loss in revenue can be covered easily by state surplus funds that have grown to more than $300 million.

    Four years ago, Sauerbrey proposed a whopping 24 percent cut in the state income tax, an idea that helped propel her to within 6,000 votes of the governor's mansion. Since then, however, a strong economy has allowed Glendening (D) and state lawmakers to approve plans to reduce income taxes by 10 percent. Sauerbrey said the reductions are not enough, and she plans to unveil a more comprehensive tax-cut package in the coming weeks.

    "I think Marylanders are still crying out for tax relief," Sauerbrey said in an interview yesterday. "The current administration very reluctantly was dragged into a tax cut. That was great, but we have a long way to go to make this a tax-friendly state. I started the ball rolling four years ago. . . . I want to complete the job."

    Sauerbrey's proposal raises questions anew about how much of a tax cut Maryland can afford. As was the case in this year's legislative session, there are many groups statewide that are urging lawmakers to use the state's healthy surplus to invest more in schools and social programs.

    "Education comes first, tax cuts later," Glendening spokesman Peter Hamm said. "Governor Glendening has been very fiscally responsible. There have been no new taxes, no tax increases. We've reduced 15 taxes, including the personal income tax. Our schools are more important than more tax cuts at this point in the state. Ellen Sauerbrey has just got another gimmick."

    Pollster Brad Coker of Mason-Dixon Political/Media Research said Sauerbrey's proposal would likely be well received by older Democrats, but would have a lot less appeal than the 24 percent income tax cut she called for four years ago. Since then, the economy has rebounded and the state has taken action to reduce taxes.

    "The heat has been turned down on it a little bit," Coker said.

    Still, Coker said, if the gubernatorial race is as close as 1994, small movements in key constituencies could make a big difference in the outcome.

    Del. Robert L. Flanagan (R-Howard), a member of the House Appropriations Committee, said the tax cut is affordable and costs about the same as the income tax reduction approved by the General Assembly last year. "This tax cut is important not just to current retirees, but to everyone who is struggling to plan for their future retirement," he said. "Governor Glendening wants to keep the money for new social programs. We all know that a lot of social programs don't work or work inefficiently."

    Maryland already exempts the first $15,000 of Social Security and pension income from state income taxes. Economics professor Stephen Walters of Loyola College in Baltimore, a Sauerbrey adviser, said the Republican's proposal would expand the benefit to include accumulated savings and interest. The exemption would apply to total retirement income of up to $33,000 a year for individuals and $60,000 a year for couples.

    But Frederick W. Puddester, Glendening's budget secretary, said the surplus funds that would be used to make up for the lost revenue are needed to pay for the 10 percent phased-in income tax cut approved last year by the legislature.

    "That money is already accounted for," Puddester said. Maryland has $700 million worth of reserves, $400 million of it in a "rainy day" fund needed to retain the state's AAA bond rating. The remaining $300 million is needed to help pay for the remaining portion of the already approved tax cut, he said.

    "It's reckless to fund an ongoing tax with a one-time revenue source," Puddester said.

    Sauerbrey, who faces Howard County Executive Charles I. Ecker in the Sept. 15 Republican primary, has spent much of the last four years preparing for a rematch with Glendening. She has shored up her political organization, and she has had more success on the fund-raising trail.

    On Tuesday, she will file a campaign finance report showing that she has raised almost $3 million, a record for a Maryland Republican. Struggling for financial support four years ago, Sauerbrey had to accept public money for her campaign and spending limits that came with it. Glendening outspent her by more than 3 to 1, winning by fewer than 6,000 votes.

    Sauerbrey's most recent campaign filing shows significant support from a Maryland business community reluctant to support her dark-horse candidacy last time.

    Ten donors surpassed the $4,000 state contribution limits, including construction firms Gray & Son Inc. and Coakley & Williams Construction. Campaign officials said yesterday that they would be reimbursed or given the option of shifting the money to Sauerbrey's running mate, former U.S. attorney Richard Bennett.

    Among her biggest political action committee contributors are those funded by developers, including Metro Washington Associated Builders and Contractors, the Utility Contractors Association of Anne Arundel County, and ABC of Southern Maryland.

    Political action committees supported by bankers, health care professionals and lawyers also gave more than $1,000 to her campaign.

    Staff writer Scott Wilson contributed to this report.

    © Copyright 1998 The Washington Post Company

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