panel aims to raise $800 million Draft proposes levy on services,sales tax increase

November 17, 1990|By John W. Frece | John W. Frece,Annapolis Bureau of The Sun

ANNAPOLIS C. FRASER SMITH OF THE SUN'S METROPOLITAN STAFF CONTRIBUTED TO THIS ARTICLE. ANNAPOLIS — ANNAPOLIS -- A gubernatorial commission is set to recommend landmark restructuring of the state's tax system that would increase and expand the sales tax and raise taxes on higher incomes while redistributing millions of dollars to Baltimore and the poorest counties.

The commission's proposals would generate an estimated $800 million in added revenue for the coming fiscal year alone and affect the pocketbooks of Marylanders in every walk of life.

The Maryland Commission on State Taxes and Tax Structure, in a draft final report obtained by The Sun, would increase the sales tax from 5 percent to 5 1/2 percent and expand the tax to cover cigarettes and a long list of currently untaxed services, ranging from cable television to auto repair to data processing.

Lawyers, doctors and accountants, who would be considered serious political obstacles to a tax on the services they provide, apparently would be exempted.

The recommendations, once before the legislature and probably even beforehand, would face intense opposition from the industries affected.

The 17-member commission, concluding that the current tax structure cannot generate the revenue the state will need to provide adequate services throughout the '90s, also will propose changes that would make the personal income tax less regressive by widening tax brackets and shifting the tax burden toward higher income earners.

To help Baltimore and the poorest counties keep pace with their richer neighbors, the commission will recommend raising personal income tax rates to provide more for distribution to those localities. Individuals or households bringing in an adjusted annual income of $200,000 or more would face a 15 percent increase in personal income tax.

In addition, the commission proposals would subject all motor vehicles and boats to a new annual personal property tax equal to 2 percent of their value. Proceeds would benefit the Chesapeake Bay cleanup effort, transportation projects and the localities where the vehicles are registered.

The sales tax changes alone would raise $534 million in new funds in the coming year -- a year in which budget advisers to the General Assembly are already predicting a deficit approaching $400 million. The income tax increases would generate another $100 million.

"The hardest judgment we had to make was how to provide resources to the respective jurisdictions, without imposing any undue hardships on other jurisdictions," said R. Robert Linowes, the Montgomery County lawyer who has chaired the commission since its inception three years ago.

The report concludes that a huge infusion of new revenue is needed to finance improvements in education, transportation and infrastructure and to deal with other problems ranging from prisons to AIDS treatment.

All the revenue raised from broadening the sales tax base should be used for new education grants, with an emphasis on Baltimore and the county school systems that are the poorest, the report suggests. At the same time, it says, the state should gain control of one of its most unpredictable outlays by capping the amount it pays local school systems for Social Security and other fringe benefits for teachers.

To assure worried citizens that additional taxes will be wisely spent, the commission will also recommend "an approved plan that provides accountability" for revenue use.

"The commission, in recommending increased aid to improve governmental services, recognizes that such increases will only be acceptable to taxpayers if they are assured their taxes will result in genuine improvements," the report states.

To offset a portion of the tax increases, the commission also assembled a series of recommendations proposing tax reductions as well as suggesting improvements in the way certain state taxes are levied.

Property taxes, for example, would be simplified by eliminating the current triennial assessment process in favor of annual assessments based on 100 percent of the value of property.

The principal shift, however, would involve a new program of state grants that would enable the 24 major jurisdictions to reduce property taxes by $180 million statewide. Part of that money would come from the 21-cent property tax, which now is split with the subdivisions but which would all be returned to them under the commission's plan.

Baltimore, for instance, would be able to knock 74 cents off its $5.95 property tax rate, which is by far the highest in the state and considered a major impediment to the city's efforts to attract residents and expand its tax base.

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