ANNAPOLIS – Gov. Parris Glendening offered Marylanders $485 million this week, in the form of an incremental, three-year income tax cut, the first reduction since 1967.
And although state economic analysts generally support the move, some think the governor ought to do more. Others question his motives.
Glendening’s economic adviser Mahlon Straszheim, head of the economics department at the University of Maryland College Park, said the proposal is appropriate and important in making Maryland better at attracting and retaining businesses.
“It is a real signal to business and a broad-based benefit for the state as well as people in every region and every income level,” Straszheim said.
He predicted the cut will have a positive effect on all types of industries looking to come here, but that small businesses – such as high-tech and information-based firms – will reap the biggest benefits.
Straszheim said owners of these smaller companies tend to be affected by income taxes mostly, and not other types of business taxes, which would make them look more favorably at Maryland.
At the news conference where he unveiled his plan, Glendening said the only “drag” on Maryland’s economy is new job growth and that Maryland ranked 46th nationally in that respect. His proposed 10-percent cut would help by creating 5,000 new jobs annually, he said.
Michael Conte, director of the Regional Economic Studies Institute at Towson St. University, said it was difficult to offer a numerical assessment of the proposal just yet.
But he did think the tax cut would help Maryland in another way.
Conte said his organization’s statistics showed Maryland moving into the 30s in job creation because of administration efforts for the past two years. And he added that the tax cut will really help Glendening and James Brady, secretary of business and economic development, promote Maryland as a business-friendly place.
“It’s a statement about Maryland’s attitude toward business. It is a tool they will say to people looking to locate in Maryland and might swing some decisions to keep some here,” Conte said.
In addition to attracting business, Glendening said he wanted to protect Maryland families and the state’s top bond rating.
But some critics question the governor’s motives, even if they give limited support to his proposal.
Steve Walters, Loyola College’s economics department chairman and an adviser to 1994 Republican gubernatorial candidate Ellen Sauerbrey, said the proposed 10-percent cut is not enough to close the tax-rates gap with Maryland’s neighbors.
“He’s getting wise, but I’m not sure 10 percent is enough to close the gap with border states. People aren’t going to start beating a path to our door because they think their taxes will be cut three years from now,” Walters said.
He added, for example, that he knew some employees in Loyola’s accounting department, “the people with the green eye shades and sharp pencils,” who choose to live in Pennsylvania because of the lower income taxes.
Then there’s the element of political calculation.
Charles Scott, another economics professor at Loyola, suggested the governor may be too ambitious, trying to serve too many constituencies at once.
“He’s trying to do something for everyone. Raising trooper salaries. The stadium was an expensive proposition. Collective bargaining is also going to be expensive. And if that raises salaries, how many workers are going to accept early retirement?” Scott observed.
Scott and Walters said Glendening’s plan seems contradictory in many respects — the governor is cutting taxes at the same time he is pledging more aid to the Baltimore schools, for instance. Their concern is that politics is the impetus behind the tax cut.
However, Straszheim dismissed such notions, saying it took the state two years of downsizing and budget-cutting to reach this point.
“The state needed broad-based tax relief. Since January, we focused on a personal income tax and now we can pay for it,” he said.
To offset the revenue loss from the tax cut, Glendening wants to double the tax on cigarettes from 36 cents per pack to 72 cents.
Dean Stansel, a fiscal policy analyst with the Cato Institute, a Washington, D.C.-based free market think tank, said cutting income taxes while raising cigarette taxes only waters down an already modest proposal.
“Income taxes are the most harmful to the economy, and it’s good Glendening is cutting taxes. But the impact on the economy is minimal because it is phased in and coupled with a tax increase,” Stansel said.
Stansel added that Glendening’s proposed cut does not compare to the tax-cutting going on in other states such as New York, New Jersey and Arizona, among others.
For example, Stansel said, in fiscal 1997 New York cut all of its taxes by $2.2 billion, which was more than half of the $4.1 billion cut by all state governments combined. -30-