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Maryland House Democrats want residents to pay sales tax on services Hogan attacks Democrats on crime bill, expanding sales tax to fund schools overhaul
(about 20 hours later)
Searching for a way to pay for an expensive public education overhaul, Maryland House Democrats want to cut the state sales tax rate by one percentage point and expand the tax to professional services, including visits to the accountant or the beautician, which are currently exempt. Hogan, a Republican, condemned a Democratic proposal to raise money for schools by expanding the sales tax to include professional services, saying the change would “destroy our economy.”
“Maryland’s sales tax is antiquated,” Majority Leader Eric G. Luedtke (D-Montgomery) said “We tax goods and not services, and the economy is on services.” Democrats, meanwhile, scorned Hogan’s demand to stiffen prison sentences for violent offenders, accusing the governor of relying on poll data to address crime in Baltimore instead of proven crime prevention strategies.
Luedtke said House Democratic leaders will formally introduce legislation on Thursday that would broaden the sales tax but also cut the rate from 6 percent to 5 percent, lower than neighboring Virginia and Pennsylvania. The tax would not apply to education services, health care or services provided by nonprofit or civic organizations. The governor “has got to start leading and stop polling,” said Senate Judicial Proceedings Chairman William C. Smith Jr. (D-Montgomery), after Hogan said Smith’s refusal to move his mandatory minimum bill should disqualify the lawmaker from the committee chairmanship.
It was unclear on Wednesday how the House bill would be received in the Senate. Neither Senate Budget and Taxation Chairman Guy J. Guzzone (D-Howard) nor a spokesman for Senate President Bill Ferguson (D-Baltimore City) returned calls seeking comment. Smith accused Hogan of pushing the kind of “draconian policies” that have “destroyed and decimated generations of Marylanders, most of whom are black and brown.”
House Minority Leader Nicholaus R. Kipke (R-Anne Arundel) said the proposal will hurt businesses and force more retirees to flee the state. Hogan spoke in catastrophic terms about the Democratic tax legislation and vowed to stop it.
“It looks like it’s a 50 percent increase in the sales tax,” Kipke said. “That needs to be understood in the context that Maryland is one of the highest tax states in the country . . . It’s a very dangerous and harmful measure for our economy.” The proposal would broaden the sales tax to services including day care, yoga classes and financial advisers, but also cut the rate from 6 percent to 5 percent, lower than neighboring Virginia and Pennsylvania.
Discontent over taxes paved the way for Gov. Larry Hogan’s surprise win against then-Lt. Gov. Anthony G. Brown (D) in 2014. Hogan, a Republican, was considered a long shot in a state where Democrats outnumber Republicans by 2 to 1. He has railed against the cost of Democrats’ education plan in recent months, saying it will necessitate tax increases Maryland residents cannot afford. The tax would generate $2.6 billion a year by 2025 — a 50 percent increase over current sales tax revenue — that would be spent on improving public schools.
“The last time Maryland saw massive tax hikes like this, they wrecked our economy,” Hogan spokesman Mike Ricci said Wednesday night. “Governor Hogan was elected — and overwhelmingly reelected — to hold the line on taxes, and that is exactly what he is going to continue doing.” It would not apply to education services, health care or services provided by nonprofit or civic organizations.
An August report on state revenue described the growth of Maryland’s sales and use tax, which is estimated to bring in $5.2 billion for fiscal 2021, as “generally weak” and recommended broadening it to include services. “Maryland’s sales tax is antiquated,” said House Majority Leader Eric G. Luedtke (D-Montgomery), who sponsored the bill. “We tax goods and not services, and the economy is on services.”
“The shrinking tax base increases the volatility of [sales and use tax] revenue to the business cycle,” the report says. “In times of economic stress, consumers are better able to delay or forego consuming goods than services. The impact of these structural problems will only continue to increase with time.” An August report on state revenue described the growth of Maryland’s sales and use tax as “generally weak” and recommended broadening it to include services.
Last year, the state passed legislation to collect taxes on “marketplace facilitators” — businesses, such as Poshmark and Amazon, which enter into contracts with third parties to sell goods on the platforms. But Andrew Schaufele, the director of the Bureau of Revenue Estimates, said the state’s sales tax code has not been substantially modified since World War II. But the National Conference of State Legislatures said only four other states broadly tax services. Many states have attempted to do so but failed, researchers with the organization said.
“Think about how much the world has changed,” Schaufele said. “We’re still behind if we’re not taxing services.” Luedtke said the tax would generate enough to pay the balance needed for a landmark education bill that calls for expanding prekindergarten for 3- and 4-year-olds, increasing teacher training and salaries, funding grants for schools with a high percentage of students from poor families and boosting money for special education.
Luedtke said legislative analysts estimate that taxing services would raise about $2.6 billion by fiscal 2025, enough to pay the balance needed for a landmark education bill that calls for expanding prekindergarten for three- and four-year-olds, increased teacher salaries, grants for schools with a high percentage of students from poor families and increased spending for special education. The overhaul is the top priority for Democrats, who hold veto-proof majorities in both chambers of the legislature.
Because wealthier residents are believed to spend more on professional services, the change would make the state’s tax code less regressive, Luedtke said, shifting a greater burden to the affluent. The sales-tax expansion is just one option the House is considering to generate more money for schools. The Senate is also considering raising revenue by increasing a tax on cigarettes, taxing digital downloads and digital ads and allowing sports betting.
He said that the change “would be a wash” for working-class residents. For residents who make the state’s median income of $84,000, the estimate is an increase of $3 a week in taxes, he said. Because wealthier residents are believed to spend more on professional services, the sales-tax change would make the state’s tax code less regressive, Luedtke said, shifting a greater burden to the affluent.
“A cup of coffee at Starbucks would pay for us to get the best schools in the world,” he said. He also said it would address a disconnect between Maryland’s tax code and major sources of commerce in the modern economy. “Why should we tax books but not bookkeeping?” he asked. “It’s a better tax policy in general.”
Hogan, who campaigned on an anti-tax agenda in 2014, said the proposal “is a tax on working families,” since it would apply regardless of income.
“It’s a tax on single moms,” he said. “It’s not ever going to happen while I’m governor. I can promise you.”
Hogan said his internal polling shows that only 2 percent of Marylanders support a tax increase. He also said Thursday that his internal polling shows residents widely support his crime package, which would impose increased penalties for repeat violent offenders and those who intimidate witnesses. Another bill would require public records of how judges sentence violent criminals.
The governor mentioned his polling data 11 times in a nearly 12-minute statement to reporters.
Within hours, a Democratic lawmaker had tweeted criticism of Hogan with the hashtag #stoppollingstartleading.
@GovLarryHogan's personal attacks today on my Chairman @Willcsmithjr were beyond the pale. Senator Smith is a war hero who risked his life in Afghanistan each day for seven months. Larry Hogan needs to stop polling & start leading. #stoppollingstartleading pic.twitter.com/cShhcT7GbA
Smith invited the governor to testify before the Judicial Proceedings committee about his crime legislation, so that the committee can have “an intellectually honest conversation” about any data that shows why the bill is merited.
Senate President Bill Ferguson (D-Baltimore City) said Hogan was “out of line” to suggest Smith should resign. “This session is about solving problems and not pointing fingers,” Ferguson said.
House Speaker Adrienne A. Jones (D-Baltimore County) said Hogan bears some responsibility for the soaring crime in Baltimore, where more than 300 people have been killed in each of the last five years.
One-third of the murder victims and 27 percent of murder suspects in Baltimore last year were on parole or probation, and therefore under the state’s supervision, Jones noted. The union representing parole and probation workers has complained for years that the administration has left their department dangerously short-staffed.
“What are the Governor’s plans to inject some urgency in staffing his own Departments that can help curb some of this violence?” Jones asked in a statement. “. . . We cannot just add more criminal laws on the books if the ones we have aren’t being used effectively. We cannot arrest our way out of this problem.”
Jones said Hogan has not met with her since the legislative session began Jan. 8. “If he has an urgent concern about his bills, I invite him to pick up the phone or talk to me directly,” she said.
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