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As Long as We Remember...

December 17, 2002

Economics 101 for Board of County Commissioners (Part I – Tax Cuts)

Mike Kuster

Last week, the Board of County Commissioners began the tedious process of budgeting county funds for fiscal year 2004. They’ve just scratched the surface of this monumental task, and they’ve already begun falling into the Politician’s Pit of Easy Ways Out. What makes this so entertaining is that they’re looking for an easy way out of a projected healthy budget. The county projects an $853,000 SURPLUS!

The wisenheimer Mot-GOP (Men of the GOP) quickly jumped into proposals of slashing taxes and county jobs. It’s easy to understand why they are already proposing these things.

The GOP’s first answer to any political question is that taxes are too high and government is too big. While we can all agree in general on this, the answers are always a little deeper. The Mot-GOP is strictly following up on what their party believes. It goes no deeper than their statement: Taxes are too high (see Part II for government is too big). Leave it to the Mot-GOP to repeat the failures of the past. These guys are simply following the illustrious GOP potentate, President George W. Bush. He won the hearts of fiscal conservatives with “taxes are too high.” He saw a projected surplus and slashed taxes.

One of Frederick County’s True Republicans looked at the income from property taxes in 2000 and 2002 and exclaimed, “that’s a 38 percent increase!” Next, he gasped at the 50% increase in the county’s take of state income taxes during the same time period.

The amazement from this commissioner leads one to wonder, “Where have you been?”

The prices of homes in Frederick County have skyrocketed. Almost 20 years ago, my parents purchased a new home in Frederick with six acres for well under $150,000. Today, you are hard-pressed to find a new townhouse with a 5’ x 20’ yard in Frederick for $150,000.

Drive around the county. You’ll find homes “Starting in the low $400,000’s! ” GEEZ!!!

So, why is anyone surprised by these increases? Obviously, there are a lot of high-paid people moving to Frederick County and purchasing high-priced homes. The surplus is not a result of the county commissioners setting the taxes too high, but not expecting residents to earn so much money.

Which brings us to repeated failures. During the ‘90s, the gross combined income of U.S. residents rose tremendously. Therefore, tax revenue increased to a point that the U.S. Treasury was spilling over.

For the first time in decades, the federal government was in the black. Here in Maryland, the same thing happened. Income levels rose to the point of unprecedented tax revenues. This led to surpluses.

Government budget planners must rely on projections of tax revenue when drafting their budgets for the upcoming year. In 2001, President Bush saw a projected surplus and said “aha! I knew our taxes were too high! We’re taxing beyond our need!” He then cut taxes across the board. Yahoo!

This happened in states across the country. Some states increased their spending. Ohio, California, and Virginia face very difficult budget woes. Compared to other states, Maryland is sitting pretty.

In Maryland, Governor Parris N. Glendening saw a projected surplus and said, “aha! I can cut taxes in Maryland, fund much needed programs, and create a huge rainy day fund.” Yahoo!

Now that tax revenue from incomes is dropping, the federal government decided to forgo a balanced budget. The states are scrambling to cut spending or follow the feds by allowing red on the ledger. The tax cut plan failed.

It teaches us a lesson. The Mot-GOP learned part of the lesson. There is a fundamental rule of attention spans. Most people only remember the first and last part of the story. They forgot the middle.

The Mot-GOP learned projected surplus = failure, but has forgotten the middle section.

The failure was in the middle. Cutting taxes due to a projection of tax revenue fails. Spending a projected surplus on on-going programs fails. So, what should you do with a projected surplus?

First, create a rainy day fund. That surplus may not be there. Like the Boy Scouts, Frederick County should “Be Prepared.” President Bush did not calculate two wars in his budget plans, and was unprepared.

Calculate a rainy day fund that will fund a 10% (or whatever you deem a realistic shortfall) deficit in tax revenue for the fiscal year or the next. Next, use this opportunity for any one-time expenditures that are needed; A new fire engine or computer system or whatever. Wouldn’t it be better to buy it when we have the money?

Then cut taxes, but not across the board. Let’s get smart about cutting taxes. At the local level, property taxes make up the biggest part of the revenue. They’re also much more stable than income taxes. If the county decides it needs less money, cut the income tax. Income taxes have already proven to be an unreliable source of income. They are also not graduated on the local level. Therefore, Frederick County taxes an impoverished family, a median income family, and the highest income family at the same rate, which is tacked onto the state income tax.

The middle class needs a tax cut.

The working class needs a tax cut.

The Board of County Commissioners cannot provide the relief needed in tax cuts. They will only end-up hurting the county further.

Before the Mot-GOP jumps onto tax cuts, they must heed the failures of the federal tax cuts of 2001. The tax cut did not spur economic recovery. The tax cut did not allow a balanced budget. The surplus disappeared, and our economy is still sluggish at best.

Remember these are projected surpluses and deficits. While Frederick County’s income tax revenues dip, its property tax revenues are bound to continue climbing.

We are living in the best and most beautiful county, in the greatest country on earth.

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