Tax and consequences

November 08, 2007

If Democrats in Annapolis wanted to demonstrate their imperiousness to voters, they are doing a heckuva job so far this week. On Tuesday, the Senate Budget and Taxation Committee took much of the progressiveness out of Gov. Martin O'Malley's revenue package, demonstrating a preference for millionaires over working families. Worse, the same committee pulled a bait-and-switch by choosing to apply the sales tax to a variety of businesses that had not previously been considered (or warned).

The governor doesn't seem particularly upset by any of this, but he should be. Lawmakers are making decisions with far more regard to the vicissitudes of politics than to good tax policy. And unless the full Senate or House makes changes, Mr. O'Malley's goal of simultaneously eliminating the state's structural deficit and lowering taxes for most Marylanders will no longer be possible.

No doubt the owners of computer service companies, landscapers and arcade operators are wondering how they ended up on the Senate's hit list. Mr. O'Malley had originally targeted health clubs, tanning salons and massage therapists for an expansion of the sales tax. By not giving the new targets fair warning, the Senate certainly cut down on those pesky protests.

Perhaps it is appropriate to apply the sales tax to computer services and the like, but how can lawmakers make that choice without benefit of at least a modicum of public involvement? Certainly, it demonstrates the folly of making such important decisions in the crush of a special session.

Unfortunately, the sales tax is not the only proposal that shows lawmakers choosing the route of political expediency. The same Senate committee responded to complaints from Montgomery County lawmakers and capped the income tax on high-end earners at 5.5 percent instead of the 6.5 percent Mr. O'Malley proposed. They also largely eliminated any tax reductions for low- and middle-income workers. Considering how regressive the rest of the tax package is, that's outrageous. Legislators say they want a more progressive tax system, but apparently they also fear the wrath of the state's rich, many of whom live in Montgomery County.

Meanwhile, the committee's decision not to tie the gasoline tax to the growing cost of construction shows a distinct lack of courage, too. Mr. O'Malley had proposed indexing the tax so that money set aside for expanding transit systems and building roads wouldn't be overtaken by inflation. Instead, the Senate appears willing to dedicate a sizable portion of the sales tax for transportation projects. That's helpful, but the gas tax is better - it's a user fee that targets those who drive the most. It isn't even particularly costly: Indexing might raise the price of a gallon of gas by all of 3.5 cents in five years - far less than recent price increases.

Legislators need to show some backbone and weigh these important tax decisions with more in mind than their own re-election. It was, after all, a case of poor tax planning (their willingness to boost education funding by $1.3 billion five years ago without providing a means to pay for it) that put them in this predicament in the first place.

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