By Sue Fernandez
ANNAPOLIS – Halfway through the General Assembly session, Gov. Parris N. Glendening remains skeptical of whether the state can afford a personal income tax cut, administration officials say.
At a House Ways and Means Committee hearing Wednesday, Eloise Foster, deputy secretary of the Department of Budget and Fiscal Planning, said Glendening would wait until next week — when the latest state revenues estimates are due — before making a final decision on the tax cut.
“But the administration is not optimistic about what will be in that report,” Foster warned.
Last year, Glendening promised a 6 percent personal income tax cut this legislative session, in order to stimulate the economy and appease businesses. At the time, he said the state would use $500 million set aside in surplus funds to offset the revenue losses.
But now that money may be needed to counterbalance a weak economy and a potential $115.8 million in federal budget cuts, Foster said.
“The governor says we should proceed cautiously, so that we do not have to come back and talk about a tax increase,” she told the committee.
Rep. James F. Ports, R-Baltimore, said that despite a tight budget, the state needs to stay focused on improving its business environment.
Ports, along with the other 40 House Republicans, is sponsoring a bill to eliminate the income tax altogether for some low-income wage earners, while increasing the personal exemption and the maximum deduction for two-earner couples from $1,200 to $1,600.
At the hearing, Ports said the Department of Business and Economic Development made lowering the personal income tax a priority in the strategic economic development plan it released this fall. The plan was developed by a task force on economic development put together by Glendening.
“You can give the citizens of Maryland a tax cut now, or you can simply put it on the shelf to collect dust, only to create another task force on the issue,” Ports said.
He added that Republicans are working to find ways to cover any revenue losses from a tax cut.
A panel of business interests also expressed support for a tax cut at the hearing, but the three members spoke in favor of a House Democratic proposal over the Republican bill.
A bill sponsored by House Ways and Means Committee Chairman Del. Sheila E. Hixson, D-Montgomery, and other House Democratic leaders would gradually reduce the income tax rate for those in the highest tax bracket, from the current 5 percent to 4.75 percent by 1999. It would also gradually increase the personal exemption.
A third proposal, sponsored by Dels. Michael Gordon, D- Montgomery, and Clarence Davis, D-Baltimore, would immediately reduce the top tax rate to 4.75 percent, and decrease the personal exemption.
“It isn’t a good time to cut taxes, but we believe a fundamental change is necessary,” said Robert Neall, senior vice president of the Maryland Chamber of Commerce. “Maryland’s income tax is among the highest in the country, and this is a fundamental economic problem.”
While business interests say an income tax cut would stimulate the state’s economy by giving people more money to spend, social service agencies say a cut would hurt overall.
“Taxes exist to provide government services. When revenues are not adequate, a state’s quality of life deteriorates, and that’s not good for business,” said Liz McNichol of the Center on Budget and Policy Priorities, a Washington, D.C., think-tank on fiscal policy affecting low-income Americans. Added Peter Burns, executive director of the Maryland Association of Nonprofit Organizations: “This bill will result in a revenue loss the state cannot afford.” -30-