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The logic of cutting state taxes


DISCUSSIONS about Maryland's high personal income tax largely ignore the causes of taxes, as though taxes exist in a vacuum. There have been two results. We fail to examine properly where we have more government than we need or can afford. And elected officials, eager to maintain current tax levels, have tried to claim the high ground with assertions that, while Maryland's state and local personal income-tax rate is fourth-highest nationally, its total tax profile -- the combination of all Maryland taxes is not burdensome: In total taxes per capita, Maryland ranks 12th.

Ignored is the reality that decision makers invariably focus on personal income taxes, not the aggregate of taxes. Obscured is recognition that the personal income tax has come to symbolize what is wrong with Maryland's business climate. It is the most tangible and pervasive thing about government that everyone experiences. Decision makers who might expand or move to Maryland do not want to support an unnecessarily large public sector, nor run the risk of having discriminatory taxes enacted against them.

Nevertheless, the case for lower income taxes languishes despite the desperate need to stimulate Maryland's economy in order to achieve Governor Glendening's promise that "Maryland would be the new benchmark for economic development and job creation."

The debate itself requires stimulus.

For most of the last 25 years, Maryland's annual growth in state spending has been twice the growth rate of its residents' incomes. Over the same period. Maryland's population grew 22 percent while state government employment grew 79 percent -- more than three and a half times faster.

Government employment makes up about 20 percent of Maryland's work force, while manufacturers -- the greatest wealth-producing sector of any economy -- employ only 7.5 percent (compared to Virginia's 14.5 percent), a figure that has been declining at nearly twice the national rate.

Maryland has roughly one state or local public employee for every 19 citizens. The contribution rate of the pension plan for Maryland state employees and teachers is currently set at 13.5 percent of payroll. This is about three times the private-sector rate.

Protected class

Wendell Cox, co-author of "America's Protected Class," published by the American Legislative Exchange Council, reports that state employees in Maryland receive 28 percent more in wages and benefits than their private-sector counterparts. Maryland ranks 15th among states in the disparity between public- and private-sector compensation.

State employees are paid an average of $7,000 more than their private-sector counterparts. In contrast, Massachusetts -- sometimes derisively called "taxachusetts" -- ranks 46th with a disparity of only $1,394. The disparities of Virginia, Delaware and North Carolina are substantially less than in Maryland.

When county and municipal employees in Maryland are measured, the wage and benefits disparities relative to private-sector employees are even greater, according to "America's Protected Class." Local-level government employees in Maryland receive 29 percent more wages and benefits than their private-sector counterparts and rank fifth-highest nationally among local governments in other states. In contrast, the local governments of Massachusetts rank 46th with a disparity of only 3 percent, and the disparities of Virginia, Delaware and North Carolina are substantially less than in Maryland.

And here is one final important item. The budget increase proposed for fiscal year 1997 has been reported uncritically to be two tenths of one percent instead of the customary 3 percent to 7 percent. However, the budget's planned spending for fiscal year 1997 is actually 3.47 percent ($492 million) greater than the spending budget approved by the General Assembly for fiscal year 1996.

As freshman Kansas Congressman Sam Brownback says, "You can do a lot of things if you don't know you can't." It is time for Maryland to follow this advice.

Robert O.C. Worcester is president of Maryland Business for Responsive Government. This article is taken from an editorial in its publication Roll Call.

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