Democratic gubernatorial contender William Donald Schaefer suggested today that the state retain hundreds of millions of dollars in additional state income tax revenue it would receive as a result of federal tax overhaul, rather than change state tax laws to give Maryland residents the full benefit of the tax plan.
Schaefer, speaking at a forum staged by social service groups at the University of Maryland's Baltimore campus, said the state should consider using the money -- estimated at $127 million to $224 million in fiscal 1988 -- to pay for "unmet needs."
Congress is debating tax overhaul proposals that would cut tax rates, but also eliminate many deductions at the federal level and thus raise a family's federal taxable income. Because in Maryland, as in many other states, the state income tax is based on a family's federal taxable income, state taxes would go up unless the state legislature acted to cut the state tax rate.
The Baltimore mayor's suggestion was immediately denounced by his chief opponent in the Sept. 9 primary, Attorney General Stephen H. Sachs, who favors changing the state's income tax laws. Keeping the money, said Sachs, would consitute a tax increase for state residents and violate the mayor's oft-repeated declaration that he is opposed to any tax increase.
"I've been wondering how the mayor was going to pay for all the proposals he's been making," Sachs said after the forum. "If he's talking that way, he is obviously thinking of slipping an income tax increase on the people of Maryland when he thinks they aren't looking."
Schaefer said that the state should not automatically change its tax laws because additional funds may be needed to pay for Maryland's savings and loan crisis, transportation needs and a variety of social programs.
"There are those who are going to jump right on it and say, 'Well, let's give it back to the taxpayers,' " said Schaefer. "Let's take a look at it first. There are some unmet needs in the state that must be addressed."
According to an analysis prepared by the Maryland General Assembly's Department of Fiscal Services, the U.S. House version of the tax overhaul proposal would increase state income tax revenue by $127 million in fiscal 1988. The Senate version would produce an additional $224 million that year. The bulk of the increase would come from personal income taxes rather than corporate tax revenue.
The issue could prove to be an explosive one in the governor's race, where Sachs' proposal to increase the state's sales tax from 5 cents to 6 has already generated considerable debate. Schaefer has denounced that proposal as antibusiness and argued that the state economy is robust enough to finance spending increases for education, economic development and welfare programs.
If Schaefer fully embraces retaining the state income tax windfall, it could set the stage for a debate between the two candidates over the benefits of a sales tax versus those of an income tax. Any income tax increase would hit wealthier jurisdictions -- such as Montgomery County -- more than poorer areas, such as Baltimore.
At today's forum, the two candidates also shared their markedly different philosophies of how priorities should be set for providing such support services as shelters for the homeless, soup kitchens and job-training programs for the unemployed.
Schaefer repeated his position that the state should rely more heavily on the private sector to supplement state social programs and said the biggest boon to the poor would be an aggressive economic development program.
"I'm probusiness," Schaefer said. "No question about it . . . because without development and jobs, you can't make it."
Sachs, on the other hand, said that the state should work from the bottom up, focusing first on programs that emphasize "human development."
"Unlike some, including my opponent, I don't believe that a human services system can ever trickle down from the walls of hotels and skyscrapers and magically materialize as a consequence of private economic activity," said Sachs.