Revamping the sales tax

February 06, 1992

As state legislators continue their search for a $1.2 billion package of spending cuts and taxes to wipe out Maryland's budget deficit, the sales tax has emerged as the primary vehicle for coming up with more dollars. Yet raising the sales tax isn't the first choice of the governor and legislative leaders. Instead, they want to remove exemptions and extend the levy to services. This is long overdue.

Of the state's major taxes, the levy on sales of goods is the most regressive. The poor pay a much higher percentage of their income in sales taxes than do the rich. Simply hiking the tax would only exacerbate this gap between rich and poor. But wiping out exemptions and taxing goods and services would, in fact, reduce the disparity.

A broadened sales tax with fewer exemptions could raise $930 million, according to a study commissioned by the Maryland State Teachers Association; Gov. William Donald Schaefer's proposal calls for raising $375 million in this manner; legislative leaders are formulating a $250 million tax-broadening plan, and House Speaker R. Clayton Mitchell is devising a more modest sales tax plan.

Such steps are essential if Maryland is to have a tax structure that is both equitable and sufficient to meet the state's future needs. Marylanders now spend more money on services than on goods; only 30 percent of the items they buy are taxable. As the trend toward a service economy continues, the state's sales tax receipts will continue to slow. And with the aging of the state's population, even slower sales tax receipts are expected toward the end of this decade.

Contributing to the problem is that every year, the General Assembly adds to the long list of exemptions in the law. Many are for worthy social purposes, but the base of the sales tax keeps shrinking. The Linowes commission, for instance, discovered that as a result, Maryland's sales tax generates 40 percent less than it does, on average, in other states.

Ideally, Maryland lawmakers should impose a sales tax on all services and goods, without any exceptions. Tax credits could be given to low-income individuals to compensate for taxes on basic necessities such as food, medicine and fuel. But no one in Annapolis wants to tax these basics; nor do lawmakers and the governor want to extend the tax to all services or end all exemptions. They are being selective, hoping to avoid offending powerful constituencies.

We urge legislators not to succumb to the pressure tactics of special-interest groups trying to avoid taxation. An expanded, more equitable sales tax is a sound way to raise new revenue. The broader the application, the better. Taxing goods and services alike would be a step toward tax fairness for all Marylanders.

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