How to cut taxes Annapolis dilemma: Should wealthy or poor get the biggest income-tax break?


THERE'S A DISPUTE bubbling in Annapolis that ought to please taxpayers. Lawmakers and aides to the governor are debating what form a tax cut should take next year. It's no longer a question of "whether" but "how."

Business leaders and some Republicans want a big income-tax rate reduction that would give the largest benefits to wealthy Marylanders. They see this as a way to make Maryland more attractive to businesses looking to relocate. The governor and House leaders seem to favor this position, but with a smaller overall cut in taxes.

Senate leaders, though, would rather hike the individual exemption than the tax rate, a move that would give the biggest percentage tax break to low-income filers, since everyone would receive the same amount of tax relief. But this approach could prove meaningless as a business lure.

Still, this sounds idyllic for the ordinary taxpayer. Why not a 15 percent cut phased in over three years, as the state Chamber of Commerce urges? Because fiscal circumstances may make such a move unwise.

Most worrisome are cuts in federal aid, estimated between $2.4 billion and $3.5 billion for Maryland over the next seven years. Gov. Parris Glendening says he won't fill gaps in programs and services from these cuts. But that's easier said than done, especially as the clamor builds for the state to serve as a safety net to keep programs going. The governor's stated approach would mean fewer government services for middle-class and lower-class families.

At the same time, Mr. Glendening will have to reduce government spending by $200 million or more to underwrite a decent-sized income-tax cut. The Chamber of Commerce's approach calls for a $900 million cut in state and local spending. Putting either plan on top of the drastic decrease in federal aid could create a huge financial hole.

Given the uncertainty of the precise federal cuts, prudence ought to be a prime consideration in the months ahead as lawmakers and the governor discuss ways to reduce the income-tax burden. A sizable reduction that sends the right signal to businesses is important -- but only if it doesn't put Maryland in a long-term fiscal bind.

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