Foes say tax rise would hurt Md.

Busch plan would drive consumers elsewhere, business groups argue

March 24, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Business groups are howling about the tax increases proposed by House Speaker Michael E. Busch, predicting that the package would send more consumers out of state to buy goods and hurt Maryland's ability to attract new businesses.

Busch and other House Democrats want to pay for a long-term public education reform plan by increasing the sales tax to 6 percent from 5 percent and the corporate income tax rate to 7.9 percent from 7 percent, along with increasing the cost of titling a vehicle and the state income tax for high-income citizens. Several services, including real estate property management, would be hit with a sales tax.

With those changes would come a decreased state property tax rate, less expensive college tuition and lower taxes for the lowest-income residents.

The impact on businesses' profits is being debated. With a reduced property tax rate, at least one policy group thinks, the proposal would barely affect profits. But many trade associations don't like what they see.

"We've called our members to action, urged them to write their legislators and oppose this," said William Burns, spokesman for the Maryland Chamber of Commerce. "We should strive to stay where we are. Levying new taxes and increasing old taxes is a step in the wrong direction."

The Maryland Retailers Association fears that the bill would prompt more residents to avoid sales taxes by buying products online or in Delaware. Car dealers are unhappy about the proposed titling increase. An economic consultant warns that homebuilders might see less demand for high-end homes if the state raises the taxes of high-income earners.

And the chamber thinks Maryland would appear less attractive to businesses looking to relocate. All of the increases proposed would touch companies because some, such as partnerships, are responsible for individual income taxes rather than corporate income taxes.

"Businesses paid $1.1 billion in sales tax in fiscal 2003, and that's not sales tax that they collect from their consumers; that's sales tax that they pay for items that they buy," Burns said.

Steve Hill, director of the Maryland Budget and Tax Policy Institute, said he doubts that the tax package would affect businesses significantly because the property tax decrease would reduce the sting. Some businesses might pay a little more, he said, and some a little less.

"It's going to have a greater impact on individuals than on businesses," he predicted. "The direct cost to business of this will be relatively small, and at the same time, businesses will benefit substantially from whatever public services get funded."

Education in particular is an economic development tool, said Pat Foerster, president of the Maryland State Teachers Association. She said she supports the tax plan because it would spread the responsibility for school funding "more evenly across the entire citizenry" than slot machines would.

Anirban Basu, head of Optimal Solutions Group, a Baltimore economic and policy analysis consulting firm, thinks the Busch tax plan wouldn't be good for businesses. Retailers would be most affected, he said, though homebuilders would feel ripple effects of the individual income tax increase if high-income earners moved to Washington or Virginia.

Basu advocates fewer tax increases paired with slots at tracks, which he said would bring in a new source of revenue and help the horse racing industry. "It's fairest," he said.

Robert O.C. Worcester, president of Maryland Business for Responsive Government, opposes a tax increase. The legislature allowed state government spending to balloon during the Glendening administration, he said, and it needs to cut back.

"To say the taxes are going to go to education, that's the old `It's for the children' ruse," he said.

Car dealers, noting that the House of Delegates recently approved a higher auto registration fee to finance the transportation trust fund, are alarmed at the higher titling tax proposed.

"It's going to hurt car sales," said J. Peter Kitzmiller, president of the Maryland New Car and Truck Dealers Association. "We're going to do our darndest to get this removed. ... California last fall raised fees on cars about $200 a car. The first month they did it, sales were off 37 percent."

Because the title tax is based on the total purchase price of vehicles sold in the state, "the revenues will grow every year if you just leave us alone," he said.

Steven H. Adler, president and owner of five Big & Tall apparel stores in the Baltimore-Washington area and managing partner of Historic Savage Mill in Howard County, said he could stomach the sales tax increase more than the other ones. He said he doubts that people who aren't avoiding the Maryland sales tax would cross state lines if it went up by a cent.

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