Maryland's Tax-Cutting Question
By Daniel LeDuc
Senate leaders said the state could safely provide extra tax relief next year without threatening its fiscal condition, because of a bulging state budget surplus that is fast approaching $300 million for next year.
"We're in the midst of an economic boomlet that was unanticipated" when the tax cut was passed last year, said Senate President Thomas V. Mike Miller Jr. (D-Prince George's). "We have enough cushion."
The new Senate plan sets up a election-year political battle likely to dominate the final weeks of the General Assembly session. House Democratic leaders are pushing an alternative proposal, a one-year cut in state property taxes, while Republicans in both chambers are pushing even steeper cuts in income taxes.
Gov. Parris N. Glendening (D), who has expressed caution about the whole idea of tax relief this year, offered cautious support yesterday for the Senate approach, which he described as more fiscally responsible than the House plan.
Glendening said in an interview that there was a "good chance" of accelerating the tax cut as long as the increased surplus estimates bear out, but he dismissed the cut in state property taxes as a "one-year gimmick." He expressed hope that the legislative leadership would be able to work out a compromise, adding, "Otherwise, I will bring everyone together."
With Glendening's support, the General Assembly approved a plan last year to cut income tax receipts by 10 percent over five years by lifting personal exemptions and reducing the state's top tax rate from 5 percent to 4.75 percent. The move seemed at first to preempt further talk of tax relief, but the bulging state coffers have changed all that.
The surplus is pegged at $283 million, and a revised estimate due within two weeks is expected to be higher. In addition to further tax relief, Glendening and legislators are considering a range of new spending initiatives, from new money for the University of Maryland to expanded services for the disabled.
The new Senate tax plan -- introduced yesterday by Sen. Barbara A. Hoffman (D-Baltimore), chairwoman of the Budget and Taxation Committee -- would double the size of the income tax reduction scheduled this year from 2 percent to 4 percent. Hoffman's plan, in effect, would speed the phase-in of the income tax cut from five years to four.
Meanwhile, in the House, Speaker Casper R. Taylor Jr. (D-Allegany) has focused on a one-time reduction in the state property tax. His proposal, which is pending in the full House, would reduce the property tax from 21 cents to 16 cents per $100 of assessed value of property, a one-time savings for taxpayers of $56 million.
Taylor has criticized some of Glendening's new initiatives -- such as more money to help care for the developmentally disabled, new scholarships for technology students and additional money for colleges -- because they obligate state money in future years.
Instead, Taylor said, it makes sense to take advantage of a one-time windfall of a surplus with a one-time tax cut. He said that the property tax, which under the state constitution is determined each May, was the logical place to do it.
"We in the House continue to firmly believe that the reduction in the state property tax is the prudent approach because it is done on an annual basis," he said. "We're obviously going to have to resolve our differences [with the Senate], or there won't be any tax cut."
Miller said yesterday that he recognized that the Senate proposal sets up a potentially bruising fight in the General Assembly this year. "I think we're going to be at loggerheads," he said. The Senate has never been interested in the property tax cut, Miller said. Under the constitution, the state Board of Public Works -- which consists of the governor, treasurer and comptroller -- sets the property tax rate each year. Miller said the House legislation shifts the tax cut burden to that board and "smacks of election year gimmickry."
The state property tax cut is strongly advocated by one of Glendening's challengers for the Democratic gubernatorial nomination, Eileen M. Rehrmann, the Harford County executive. She has advocated that the property tax be left on the books but zeroed out in flush times such as these.
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