A higher income tax? A higher sales tax? A higher corporate tax? Stiffer tobacco and liquor taxes? State legislators in Annapolis are at the point where they have to make the distasteful decision as to which taxes, if any, should be raised to help bring Maryland's budget back into balance. The clear favorite at the moment: extending the sales tax to certain services and narrowing the number of exemptions.
From a tax-equity standpoint, that's a sound decision. It is also a good decision from the revenue-raising side: depending on how far the extension and the removal of exemptions are taken, this step could raise nearly $1 billion. And it would put Maryland in an improved position later this decade because services are the fastest-growing segment of the state's economy.
At the moment, Maryland's sales tax is one of the least effective in the United States. Its base is so narrow -- it only applies to goods and there are 25 multiple exemptions in the law -- that in constant dollars, Maryland's sales tax barely kept pace with inflation from 1977 through 1990. And then last year, for the first time since the tax was imposed in 1947, revenues actually declined.