Sales Tax

IN A TIME of plenty, it's ironic that Maryland's governor and legislators are talking about raising taxes. Yet there is a pressing need to spend more in a key area: transportation.While Maryland's general revenue funds are flush -- mainly from fast-rising income-tax and sales-tax receipts -- the flow of gas-tax money into the transportation trust fund hasn't kept pace with road and mass-transit demands.Unless something is done quickly, Maryland won't have cash for light rail and highways and to replace the crumbling Woodrow Wilson Bridge.

Four days after a Maryland General Assembly session that produced a first-ever income-tax cut, House Speaker Casper R. Taylor Jr. yesterday renewed his call for a thorough examination of the state's entire tax structure.Addressing a conference in Baltimore, the Cumberland Democrat said the state's income-tax burden is the fourth-highest nationwide. He said the corporate tax burden is the fifth-lowest and the sales-tax burden is the sixth-lowest."That suggests to me it needs some rebalancing," said Taylor, a potential rival of Gov. Parris N. Glendening.

State bean counters blame the crash in sales-tax collections on high gas prices and a weak economy. I bet there's something else going on. In January, Maryland's sales-tax rate rose by a fifth. To 6 percent. If you don't think that's compelling more people to avoid the tax by shopping on the Web or driving to "tax-free" Delaware, keep reading. Given Maryland's budget hole, raising the sales tax from 5 percent to 6 percent was probably necessary. But as much as small states such as Maryland like to steer their own destinies, forces from across the border often cause detours.

Mike Huckabee wants to put my pal Harry out of business. Harry does my taxes. Mr. Huckabee wants to make tax preparers obsolete by getting rid of the federal income tax. He'll get rid of the Internal Revenue Service too, if he can. On that issue, the Arkansas governor belongs to a mighty large club. Few Republican presidential candidates ever went broke calling for tax cuts. Some, like Mr. Huckabee, just take it to a further extreme. Now that he is surging in the polls, people are beginning to take seriously what he has to say. It turns out, despite all of the attention that the former Baptist minister's religious beliefs, social conscience and friendly teddy-bear personality have received, his war on the income tax is a major reason for his surge.

Mahlon Straszheim gives Gov. Martin O'Malley his due. At least he has proposed a plan to deal with the state's fiscal problem instead of just hoping it would go away. "The state's budget deficit problem is real," said the economics professor. "This is not an imagined problem. We face very difficult actions if we are going to balance our books here." In recent weeks, O'Malley rolled out a series of tax proposals designed to raise money to make up for the deficit caused mainly by the promises made to public schools in the Thornton legislation, promises that came without funding.

Martin O'Malley said on the campaign trail that he was "fighting for hard-working Maryland families." He accused Bob Ehrlich of heaping "$3 billion in taxes, tolls and fees on the backs of everyday Maryland families." And now that he's in office, O'Malley wants to jack up the sales tax, one of the most regressive ways to go. But the 1-cent -- that's 20 percent -- sales tax increase is part of a larger package, one that is also supposed to cut income taxes for 95 percent of Marylanders.

When I first began preparing tax returns for my clients back in the 1970s, I was able to do so by hand, without computers. The number of pages necessary to finish even the most complicated return was minimal. Today, computers are necessary to complete even the simplest returns. With a child being taxed at the parents' rate up to age 18, you actually have to do two, three or more returns at the same time. Couple that with the state tax returns - with their own set of rules - and you have the makings of a complicated, time-consuming mess.

You're a relatively small landscaping company, a computer repair outfit or the local muffler shop. You may think you have little leverage in Annapolis, where the fat cats frolic. You are so wrong! You rocked. You and a legion of tax resisters - from Montgomery County and elsewhere - tailored and reshaped Gov. Martin O'Malley's tax reform proposal. Instead of taking even modest steps toward broadening the base of the sales tax, legislators left it alone almost entirely. There had been hope that modernizing the system - extending the sales tax to cover services and making the income tax more progressive - might be a byproduct of the effort to erase a $1.7-billion budget deficit.

The fate of Gov. Martin O'Malley's plan to overhaul Maryland's tax structure remained unclear yesterday after legislators held marathon hearings on his $1.1 billion package. Liberal groups, religious organizations, labor unions and others came out in force to support the plan, which they said would make Maryland's tax structure more progressive. O'Malley has proposed a series of increases, cuts and expansions to the sales, tobacco, income and property taxes. Small-business owners and their advocates were at least as vigorous in their arguments that the package would make Maryland less-competitive and hurt the economy.

The recently passed tax package is a "fair" way to fix state finances, says Gov. Martin O'Malley. It "keeps Maryland businesses competitive," says House Speaker Michael E. Busch. But Maryland taxes remain grossly unfair and anti-competitive in one way that was barely discussed at last month's special legislative session - and the situation is about to get worse. When you buy a $149 iPod Nano from Best Buy or Circuit City, you also pay 5 percent Maryland sales tax of $7.45. But you pay zero tax when you buy one from Amazon.

Look at it this way: We could be California. Or Arizona or New York. Maryland's budget problems are terrible. The fiscal year that ended two months ago "was the worst year on record for the modern income tax," David Roose, director of the Bureau of Revenue Estimates, wrote Tuesday in a report to policymakers. Thousands of state employees are again taking involuntary furloughs. Hundreds are being laid off. Police departments, fire stations, health clinics, schools and trash agencies are losing resources and delivering less.

Annapolis is girding for a debate on taxes as the traditional election season stance of "no new taxes" is being worn down by seemingly endless bouts of state budget-cutting. Gov. Martin O'Malley has slashed spending as tax revenues have fallen and plans to announce about $470 million in further reductions this month. That has prompted some Maryland lawmakers and special-interest groups to suggest looking at the other side of the ledger to get more revenue flowing into state coffers. One tax proposal that has drawn early backing from a powerful union is an accounting change aimed at preventing corporations from hiding profits in other states, a move that could generate $20 million to more than $150 million, according to varying estimates.

Mark Lecates took advantage of the "cash for clunkers" program about 10 days ago, getting $4,500 off the price of a new Honda Civic for scrapping his nearly 10-year-old Ford Explorer. He has no complaints, but he does have a question about Maryland taxes in the transaction. The Baltimore resident paid state taxes on the full cost of the vehicle - before $4,500 was knocked off the price. His tax bill on the sale totaled around $1,025. By paying taxes on the clunker incentive, Lecates figures he paid an extra $270.

Looks like Marylanders threatening to leave the state over tax increases have one less place to go. Delaware, long the darling of anti-tax types in the Free State, just wrapped up work on closing an $800 million hole in its budget - no mean feat considering the whole thing is just over $3 billion. Gov. Jack Markell pushed for steep budget cuts but also about $200 million a year in tax increases. That comes out to about $229 per person. He increased the state's gross receipts tax to about 2.1 percent and the income tax on top earners to 6.95 percent.

Before Gov. Martin O'Malley and Maryland legislators cut another penny from classroom aid, before they balance the budget by reducing mental health services or Medicaid and before state employees are furloughed again, they must reform a decrepit alcohol tax structure that's become impossible to stomach. How bad is it? Maryland has the lowest tax on distilled spirits in the nation at $1.50 per gallon. The taxes on beer, 9 cents per gallon (less than one penny per 12-ounce can), and wine, 40 cents per gallon, rank near the bottom of the list, too. This has been a boon for those who make a living selling alcohol, but it's profoundly misguided public policy.

Gov. Martin O'Malley is expected to unveil a plan today that would quickly spend more than $350 million in federal money on Maryland transportation projects, a day after President Barack Obama signed a huge stimulus bill that will send a flood of money to the states. In an announcement expected this morning, the Democratic governor will ask a state spending panel to approve the overhaul of a Laurel MARC station as a symbolic start to using the $3.8 billion windfall that is part of Maryland's estimated share of $787 billion in federal stimulus funds.

Americans are in line for several tax breaks under the $787 billion stimulus package that President Barack Obama is expected to sign into law today. I answered several questions in my Sunday column, but readers continue to have plenty of others about how the tax breaks will affect them. Here are answers to some of your e-mails: Is every worker making under $75,000 and single getting the Making Work Pay credit? Yes. The credit is worth up to $400 a year, this year and next. (Married couples filing joint returns can receive up to $800 a year, with the credit starting to disappear once incomes reach $150,000.

What is the mood among legislators this year? I think there's going to be a lot of anxiety coming in to the session. The fact is, they stood up to fund [the public school aid programs of] Thornton or GCEI, or community colleges, or hold [university] tuition level. These are all things that have to be considered for cuts. The research money and everything else. Everything has got to be considered at this stage. Gov. Martin O'Malley has not ruled out the possibility of layoffs of state workers.

Market wrong model for public education Tom Neumark's column "Free Maryland teachers from unions" (Commentary, Dec. 9) should be labeled what it is - an argument for union-busting. His claims that teachers have "a right not to be represented," that they should individually negotiate contracts and that they should start companies that market education services to local districts are, in effect, a call for the privatization of schools and for an individualistic, entrepreneurial approach to education.

The good news is that Washington has finally decided to make a major new investment in transit. The bad is that it's metropolitan Seattle, Wash., that's demonstrating leadership in transportation policy and not the federal government. Despite the recession, the stock market drop, the credit crunch, rising unemployment and, closest to home, the recent Boeing strike, voters in the three counties around Seattle overwhelmingly approved a $22 billion investment in light rail, commuter trains and buses last week.