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  •   Sauerbrey Tax Plan Would Trim $1.1B

       
    Sauerbrey on Economics
    Photo shows Ellen R. Sauerbrey and former president George Bush.
    Former president George Bush backed up Maryland's Republican gubernatorial candidate, Ellen R. Sauerbrey, at a fund-raiser.
    (By Rick Bowmer - The Post)

    Post Stories
    Sauerbrey Plays Down 1994
    Sauerbrey Proposes Tax Cut
    Targeting Economy, Schools
    Good Economy Blurs Message
    24% Tax Cut Proposed in '94
     
    By Daniel LeDuc
    Washington Post Staff Writer
    Sunday, September 27, 1998; Page B01

    Republican gubernatorial nominee Ellen R. Sauerbrey has proposed a package of tax cuts, shifts in state spending and new programs that over a four-year term would leave a $1.1 billion hole in the annual Maryland state budget.

    Sauerbrey said she expects to close some of the gap -- which amounts to about 14 percent of the state's current $8 billion operating budget -- by making as-yet-unspecified cuts in state spending. But she said the bulk of it would be paid for with increasing tax revenue that she says her tax cuts would spur -- her Maryland version of supply-side economics.

    "I really believe that tax cuts result in a certain amount of economic growth," Sauerbrey said in an interview last week. "If we can make our economy grow, we can cut taxes and provide services."

    Both Sauerbrey's Democratic critics and several independent analysts, however, say her proposals would require dramatic cuts in state spending. And they strongly questioned the notion that there would be enough new tax revenue to offset the cuts, especially when the national economy appears to be losing momentum.

    Sauerbrey's tax cuts alone would cost $700 million in lost revenue annually, fiscal experts said. "You don't do $700 million [in cuts] nickel-and-diming state agencies," said William A. Ratchford, a state budget expert who until recently headed the legislature's nonpartisan fiscal analysis staff. "I don't think you'd find any economist to say you can cut taxes $700 million and you'll find enough revenue to offset that. . . . It's just too big a number."

       
    On the Record
    Photo of Sauerbrey and Glendening linked to Voters' Guide.
    Sauerbrey, Glendening face each other a second time. (File Photo)
    Interview Transcripts
    The two candidates were interviewed this summer by Post reporters and editors. Sauerbrey and Glendening answered several questions about their policies on the Maryland economy and taxes.
     
    Economist Charles W. McMillion, whose fiscal caution Sauerbrey had embraced in the past, said the current international economic upheaval and roller-coaster stock market were signs that the state must move slowly on major tax cutting.

    "It's prudent to be cautious," said McMillion, chief economist at MBG Information Services, a Washington business information, analysis and forecasting firm. "I just hate to see anybody making promises they can't fulfill. They need to be responsible. They need to build up the credibility of state government."

    Gov. Parris N. Glendening (D) said Sauerbrey's claims were farcical. "She has no [executive] experience. She just makes these crazy claims," he said. "We saw that game being played under Ronald Reagan. That was the birth of the biggest deficit this country ever saw."

    But if the country is facing difficult financial times, Sauerbrey and her tax-cutting philosophy are needed for Maryland to become more economically competitive with neighboring states, said one of her top economic advisers, Steve Walters, professor of policy sciences at Loyola College in Baltimore.

    "The worst thing you can do is what the present governor is doing. He is making enormous, expensive commitments that will be difficult to maintain . . . in bad economic times," Walters said. He was referring, among other things, to Glendening's proposal to increase spending for school construction by $25 million annually over the next two years and to expand a health care program, enacted this year, for the children of poor working families.

    So far, the price tag of Sauerbrey's tax and spending plans for the next four years outstrip Glendening's. The governor has pledged to seek two major new spending programs in a second term -- a plan to hire 1,100 new teachers (costing about $43 million annually) and free college tuition for good students (costing $49 million). He has not announced any tax-cutting proposals.

    Sauerbrey, by contrast, has called for removing mass transit subsidies -- currently about $380 million -- from a special transportation fund to free that money for highway construction, meaning that the subsidies would have to be paid out of the state's operating budget. Along with a $40 million plan to hire 1,001 new teachers, Sauerbrey's proposal amounts to $420 million in new spending once fully implemented over four years, if the transit subsidies stay at current levels.

    But the most expensive item in Sauerbrey's platform is the $700 million that state fiscal experts estimate it will cost to complete the 24 percent total reduction in income tax revenue, a plan that fueled her strong showing in the 1994 governor's race. Political analysts attribute the phased-in 10 percent tax cut approved last year by the General Assembly to Glendening and Democratic legislators trying to neutralize Sauerbrey's appeal in this campaign.

    This year, Sauerbrey has called for a reduction in retirees' income tax, raising the amount protected from state taxes from the first $15,000 of a person's annual income to the first $33,000.

    To reach her 24 percent goal, she would have to cut taxes an additional 9 percent. Sauerbrey said she would do so by going beyond the law passed last year, which will drop Maryland's income tax rate from 5 percent to 4.75 percent within four years. She said the rate may drop to approximately 4 percent.

    During her 16 years in the legislature, Sauerbrey voted to cut local aid and public school funds and supported increased government fees. But as she campaigns now, she has promised not to cut several major items -- such as education spending (more than $2 billion annually) and assistance for the developmentally disabled -- or add burdens on local governments.

    Fred Puddester, Glendening's budget secretary, said it would be all but impossible to achieve Sauerbrey's goals without slicing into such programs, including school aid for the counties.

    "You've got to go for the big-ticket items and lay off people, because so much of the budget is mandated by the federal government, like Medicaid, or socially mandated, like prisons," he said.

    House Minority Whip Robert L. Flanagan (R-Howard), who is advising Sauerbrey on tax-cutting strategy, dismissed those criticisms. Democrats are upset with her tax-cut proposal "because they have never managed the government to achieve economies," he said. He noted that the General Assembly earlier this year voted to speed up implementation of the 10 percent tax cut "without breaking a sweat."

    Sauerbrey touted her retiree tax-cut proposal during an appearance one evening last week at the Charleston Retirement Center near Baltimore. One person in the crowd asked her, "Ellen, how would you pay for it?"

    "We're going to pay for it the way George Pataki did in New York. We're going to pay for it the way Christie Whitman did in New Jersey. We're going to pay for it the way John Engler did in Michigan. We're going to pay for it the way Tommy Thompson did in Wisconsin," she said, citing the experiences of GOP governors. "We're going to pay for it by making the economy grow."

    But each of those states had unique experiences as they went about balancing their budgets, as well as the help of a powerful national economy. In New Jersey, for example, Whitman helped reduce the state income tax by 30 percent during her first term through a controversial multimillion-dollar refiguring of how state pensions were funded.

    Ratchford, the former head of the legislative fiscal staff, said most of the methods those governors used -- including pension fund changes, welfare changes and Medicaid reform -- have already been implemented in Maryland.

    Walters, of Loyola College, said a guide for the cuts Sauerbrey would make were contained in a recent report from the Calvert Institute, a conservative Baltimore think tank.

    That report outlines cuts totaling $870 million that a new governor could make in the first year in office. One of the report's examples -- which Sauerbrey cited -- was reducing the payroll budgeted for unfilled state jobs at a cost of $93 million.

    In a response to the study, the legislature's nonpartisan budget staff said the report drastically overestimated the savings, extrapolating from a one-day "snapshot" of personnel vacancies to the entire year.

    Democratic critics said Sauerbrey, who served on the Appropriations Committee while a delegate from Baltimore County, should know better. "It's kind to say it's naive," said Barbara A. Hoffman (D-Baltimore), the chairman of the Senate Budget and Taxation Committee, of Sauerbrey's proposals. "I think it's misleading. The only way you could do it is by drastic and draconian cuts."

    SAUERBREY'S PLAN

    Ellen R. Sauerbrey's tax-cutting and spending proposals over next four years:

    * Cut taxes on the first $33,000 of retirement income from pensions, IRAs and 401(k)s for senior citizens. $200 million

    * Cut state income tax approximately 9 percent by reducing rate, from 4.75 percent to about 4 percent. $500 million

    * Hire 1,001 new teachers. $40 million

    * Shift transit subsidies from transportation trust fund to the general operating budget. $380 million

    TOTAL: $1.1 billion

    © Copyright 1998 The Washington Post Company

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