Lots Of Options And Tough Decisions

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“Structural deficit” has become a household term these days across Maryland. After all, unless you pay no attention to anything in this state, it’s common knowledge Maryland has an estimated $1.5 billion difference between expenses and receipts that must be reconciled to balance the fiscal year 2009 budget.

There are many options on the table currently for lawmakers to consider, but insiders have outlined there are seven realistic ways to balance the budget. Here’s a look at our view on them.

- Approving slot machines. While we have generally supported slots as a revenue generator for Maryland, the case has yet to be made expanding gambling is the answer to the state’s money woes. There are too many unknowns here. It may raise millions of dollars a year once it’s set up but it’s unclear what the social and economic ills will be on the state’s communities and whether it will truly save the state’s horse racing industry. As much as $800 million has been projected to be raised annually by limited slots, but those funds are years away from entering the state’s coffers, making the short-term fix unattainable.

- Increasing the sales tax 1 percent, from 5 to 6 percent. This would go another step toward making Maryland an anti-business state. Maryland businesses are already at a disadvantage because Delaware’s sales tax is zero. This tax would be particularly troublesome for the Eastern Shore and other rural areas because it will have a larger impact on the more modest earners. Proponents say Maryland’s sales tax is less than Pennsylvania and West Virginia, the same as Virginia, among the lowest in the country and could raise $750 million annually, but this will significantly raise the cost of living, and vacationing, in Maryland and that should not be an option.

- Broadening the sales tax to services currently not under its umbrella. As proposed, services currently not taxed would be subject to the 5-percent sales tax including haircuts, cable and telephone repair, tax and accounting services and others. Expanding the sales tax is estimated to raise approximately $650 million. Although we favor no new taxes in nearly all instances, this is an area lawmakers should consider, particularly in this worst-case scenario. It’s an untapped resource for funds, which are desperately needed.

- Increase the income tax for the wealthiest citizens. Estimated to raise about $350 million, the proposal would increase income tax from 4.5 percent to 6 percent for people earning over $150,000 per year and $225 million for couples. Marylanders are taxed enough when you consider state and local figures together. There’s no need to take more money from the high earners and reduce the tax burden on the low- to middle-class. This is a liberal policy that deserves no attention in Annapolis, but we predict it will likely be one of the measures passed because it’s one of the options that will give Democrats the least amount of heartburn.

- Shifting financial responsibilities from the state to local governments, including lowering grants and reducing the state’s share of education. This could be disastrous for lower shore counties such as Worcester. The state already pays such a small share of education and any further reduction in grants or pension coverage will force the County Commissioners to resort to drastic measures, meaning higher local taxes would have to be considered. This ridiculous move is estimated to raise about $650 million.

- Address shortcomings in the corporate tax loopholes to bring in extra money. Although it’s only estimated to raise as much as $100 million, there’s good reason to consider this measure. It has been reported many of the state’s largest corporations do not pay corporate income taxes in Maryland due to a complicated clause in the tax filing law. There needs to be some way to make corporations doing business in Maryland pay their fair share.

- Slow the amount of spending in next year’s budget to 3.5 percent from the projected 8.5-percent increase. A good idea, but it’s difficult to use an across-the-board “freeze” in government. The proposed 5-percent reduction in spending is likely too drastic and will only cause further hardships for local jurisdictions. The answer could be in some type of compromise here. Spending needs to be constrained, but there are only certain areas where that’s possible. Education, public safety and health are departments that are off-limits, and that’s more than three quarters of the state’s budget.

Each of these options has a host of positives and negatives and most likely lawmakers will use a few of these options to achieve a balanced budget, but there are some that clearly should be off the table, while others deserve careful scrutiny. The answer to addressing this deficit lies in compromise. The budget cannot be balanced on one segment of society. It’s needs to be fair and that’s going to be a daunting task for lawmakers. 

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