Miller: Sales tax hike likely : Also says state should look at raising gas tax
By LIAM FARRELL Staff Writer
Consumers could soon be paying more at cash registers across the county and state.
With Maryland facing a $1.5 billion deficit, one of the state's most powerful politicians said this week that the sales tax is likely to go up.
In an interview Tuesday, Senate President Thomas V. Mike Miller Jr., D-Calvert, said the General Assembly also needs to look at raising the gasoline tax to fund an estimated $600 million backlog of transportation projects.But hiking the 5 percent sales tax to compare with Maryland's neighbors will have the broadest benefit, he said.The sales tax is estimated to bring in $3.6 billion in fiscal 2008, according to the state. A 1 percent sales tax increase would raise an extra $750 million.
"Everybody pays it," Mr. Miller said. "It's one that has the widest support."Mr. Miller isn't alone in his assessment.Although not offering as bold a prediction as the Senate president, House Speaker Michael E. Busch, D-Annapolis, acknowledged a higher sales tax will be a part of next session."It is going to receive a lot of consideration," he said.
"We are one of the lowest and narrowest sales tax bases."But any sales tax hike would be part of a broader "menu" that would first look to cut state spending, reduce aid to local government, and then fill the remaining gap with new revenue, Mr. Busch said.
Lawmakers have a duty to not unduly burden middle and lower class families with high taxes, he said."We're here to do what's going to be in the best long-term interests of the citizens," Mr. Busch said. "We're here to try to come up with a comprehensive plan."
Although Delaware does not have a sales tax and Virginia has the same rate as Maryland, sales taxes are all higher in Washington, West Virginia, Pennsylvania and New Jersey, ranging from 5.75 percent to 7 percent.
If Maryland's sales tax is raised up to 6 percent like Pennsylvania's, a $59.99 pair of women's shoes from Nordstrom would cost $63.59 at the register, an increase of 60 cents from the current $62.99. A $1,499.99 plasma HDTV from Best Buy would take an extra $15, from the current $1,574.99 to $1,589.99.
Maryland's sales tax only applies to 39 out of 168 potential services identified by the Federation of Tax Administrators, an organization of state tax representatives.Labor left untaxed includes business services such as computer work, personal services such as dry cleaning, and professional services such as auto repair and garden maintenance.
New Jersey taxes 55 of the 168 services, West Virginia taxes 110, and Washington covers 70. Virginia is lower than Maryland with only 18.Even though Maryland ranks only 44th nationally in sales tax revenue per capita, the total state and local tax burden places residents at 23rd overall. Out of those same states, Maryland is only lower than New Jersey and West Virginia, according to the Tax Foundation, a nonpartisan group dedicated to tax education.When coupled with federal taxes, Maryland is bumped up to 15th nationally and is only eclipsed by New Jersey, which places third.
Progressive?Last session, a bill sponsored by Del. Jim Gilchrest, D-Montgomery, would have taxed services ranging from auto repair shops and parking facilities to tanning salons and escort services.The legislation projected that state revenues could increase by more than $300 million in fiscal year 2008 and go up to more than $760 million by fiscal 2012.
More than 100 representatives of businesses, who represented everything from real estate to pest extermination, gathered in Annapolis to protest the legislation. They said taxing those services would drive people to do more business in neighboring states and put increasing pressure on residents with fixed incomes.The bill died in the House Ways and Means Committee.
Next year will probably be no different in terms of protest, said Dee Hodges, the president of the Maryland Taxpayers Association, a group that advocates against tax raises.Maryland's overall tax burden makes it "anti-small business (and) anti-consumer," Ms. Hodges said.The true solution is cutting spending - not raising taxes, she said."The big problem is what was created by previous legislatures: the spending," Ms. Hodges said. "That's where they (have) got to look."
Although the Maryland Retailers Association is open to discussing an increase in the number of taxed services, hiking the percentage is a "regressive" move that hits the state's poorest residents the hardest, said Tom Saquella, association president.Unlike the income tax, the sales tax is levied without regard to an individual's ability to pay it and all residents are affected equally, Mr. Saquella said.The sales tax also is becoming more irrelevant as 60 percent of Marylanders' dollars are spent on services not covered by Maryland's sales tax, he said.
For example, the latest revenue report from state Comptroller Peter Franchot said sales tax revenue declined by $6.5 million, or 2.4 percent, in May, the second decline in the past three months."The juice is not worth the squeeze anymore," Mr. Saquella said. "It's not a long-term solution."Keeping a sales tax increase as part of spending cuts could make a hike more politically palatable, Mr. Busch said.For example, the last time the state increased the sales tax by one percent in 2004 it was coupled with a reduction in the property tax rate, he said.
Mr. Busch supported the measure as an equitable way to help the state fund its priorities."It is a question of how you can fairly move forward," he said.Regardless of potential backlash, Mr. Miller said, lawmakers must have the political will to tell people what they need to hear, not what they want to hear.
The main driver of the deficit - the $1.3 billion Thornton Education Plan that was passed in 2002 and created historic levels of school funding without a matching revenue source - will not disappear, he said."Test scores have gone up, teachers pensions have improved, class size has gone down, but we haven't found an agreeable way to pay for it," Mr. Miller said. "In government you have to be pragmatists."
The Governor's Office is keeping its options open."The governor would like to see a tax system that is fair and inclusive," said Rick Abbruzzese, a spokesman. "Everything is on the table."
