The Do’s and Don’ts of a Tax Cut for Maryland

Governor Parris N. Glendening (D) has proposed a sizable cut in income-tax rates for Maryland. While the governor has taken an important step in recognizing that the key to economic growth is a lower tax burden for state residents, his proposal has several key defects that must be remedied before enactment.

The Glendening Proposal

On November 19, 1996 Governor Glendening proposed a cut in Maryland’s income tax worth $485 million over three years. If all goes according to plan, the 10 percent rate cut will be phased in over 1998 through 2000.

According to the governor’s staff, the tax cut would mean $167 per year in tax relief to a family of four with an income of $50,000.1 Under the Glendening plan, the state’s income tax would be cut by 2 percent in 1998, 3 percent in 1999, and 5 percent in 2000. The state’s top income tax rate would thus fall from 5.0 percent to 4.5 percent. The governor has stated that a tax cut “is the single most important step we can take to make Maryland more competitive and create more jobs.”2 This is certainly true, though Mr. Glendening’s epiphany came after an unexpectedly close 1994 race for the governorship between himself and Republican Ellen R. Sauerbrey, the centerpiece of whose campaign was a 24 percent state income-tax cut.3 More recently, a year of lobbying by business interests, particularly the Maryland Chamber of Commerce, and pressure from his own secretary of business and economic development, James T. Brady,4 caused the governor to commit to tax cuts. Indeed, the Glendening tax cut is not the first proposed for the state – House Speaker Casper R. Taylor, Jr. (D-Allegany) had months earlier proposed a 10 percent cut in income taxes.5

To fund his proposal, Mr. Glendening looks to three sources: (a) a doubling of the state’s cigarette excise tax from 36

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