ANNAPOLIS State officials looking for ways to balance the budget in the face of slumping tax revenues are considering postponing the final step of the state income-tax cut that is supposed to take effect Jan. 1.
The state will lose about $170 million and local governments will lose about $50 million in the next 18 months if the income tax is cut 2 percent, according to legislative fiscal advisers.
No decision has been made, but House Speaker Casper R. Taylor Jr. said it would be discussed today at a meeting between House fiscal leaders and Gov. Parris N. Glendening, a Democrat.
“I wouldn’t want to handicap the odds at this point,” said Mr. Taylor, Allegany Democrat.
Sen. Barbara A. Hoffman, Baltimore Democrat and chairman of the Budget and Taxation Committee, said last week that delaying the tax cut would be a last resort in talks between legislators and the Glendening administration about the current budget and the fiscal 2003 budget that the governor will submit to the legislature in January.
Mike Morrill, Mr. Glendening’s communications director, would not discuss the administration’s position on the income-tax reduction, but said “every alternative will be considered” as Mr. Glendening and his budget staff look for ways to balance the budget without resorting to deep cuts in spending.
“There will be many painful choices to ensure a balanced budget for 2003,” Mr. Morrill said.
Administration officials who spoke on the condition of anonymity confirmed that Senate leaders and the administration have discussed a delay in the tax cut.
The legislature approved a 10 percent cut in the state income tax in 1997, but it was phased in throughout five years. The final 2-percentage-point reduction is scheduled to take effect Jan. 1 on income earned in 2002.
There are so many variables in computing income taxes that the effect of the additional reduction will vary widely. But the average savings per person would be about $30 a year, Mr. Morrill said.
As the national economy worsened in recent months, state revenue began growing at a much slower pace than expected. The General Assembly’s fiscal advisers predict expenditures will exceed revenues by $1.7 billion by June 30, 2003, the end of the state’s fiscal year 2003.
Glendening aides say that is a doom-and-gloom scenario that makes the situation appear much worse than it is.
Mr. Morrill said Mr. Glendening would submit in January a balanced budget that maintains a surplus of 5 percent of state spending recommended by New York bond-rating agencies.
While the governor and legislature will have to make difficult decisions, Maryland “is not going to face nearly the pain that other states are facing,” he said.
Republican leaders say there would be no need to consider delaying the tax cut except for what House Minority Leader Robert Flanagan called “the extravagant and irresponsible spending” contained in recent Glendening budgets.
“The steps they are now taking are not justified by a downturn in the economy,” said Mr. Flanagan, Howard Republican.
Sen. Minority Leader Lowell Stoltzfus, Somerset Republican, said Mrs. Hoffman proposed a tax-cut delay to the Budget and Taxation Committee at a meeting several weeks ago.
“I came out very vocally against that concept,” Mr. Stoltzfus said. “But I think we’re in such desperate straits that it could happen.”
Democrats say that many other states are considering increasing taxes to balance their budgets and that Republicans in Virginia are planning to delay the final step of eliminating the car tax because they are running a deficit.
“I would never agree to support removing the last 2 percent,” Mr. Taylor said. But he said delaying it with a trigger that would restore the cut when the recession ends “could be a responsible proposal.”