Annapolis Democrats offer a Record Shattering Tax Increase Plan
This past week, Maryland House Democrats proposed the largest tax increase in the state’s history, a $2.6 billion sales tax increase on services. As Governor Hogan observed, it would cost $1,700 per Maryland household annually.
The Democratic-sponsored bill, HB 1628, had been introduced by House Majority Leader Eric G. Luedtke (D-Montgomery). [i]
The plan would extend the state’s sales tax to a broad range of consumer and business services. Maryland employers paying the services sales taxes would be placed at a competitive disadvantage against firms in nearby states that don’t tax services. None of the states bordering Maryland currently tax services.
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A state services sales tax penalizes small and fledgling businesses. Smaller businesses typically must rely on outside services (payroll, legal, accounting, etc.) which would be subject to the tax. Larger companies, however, that can perform identical functions in-house would not have any sales tax costs added to their expenses.
Service sales taxes have proven fiendishly complicated to administer for states and taxpayers, because of the multi-state nature of business activity. Cross border inter-state business activity makes it difficult to determine where, when, and how services are taking place. In fact, three states (Florida, Michigan, and Iowa) that first enacted services sales taxes quickly repealed them, in part because of their complexity in administering.
As the tax rate is the same for all consumers, no matter their income, a larger portion of the disposable income of lower-income families than that of higher-income families would go toward sales taxes. Since the state services tax might apply to daycare services, working families with children would see a hike in their child-care costs. This result is completely contrary to the Kirwan goal of making Maryland Pre-K more available.
This past Friday, Governor Hogan laid down the gauntlet to Annapolis Democrats over his opposition to the tax increase. After noting that his internal polling shows that only 2 percent of Marylanders support a tax increase, the governor said.
“It is a tax on working families. It’s a tax on single moms. It’s going to be 1700-and-some dollars per household on every service that they utilize. On daycare, on barbers, on dog walkers, on landscaping, on somebody that cuts your grass. This is the largest tax increase ever in the history of the state. It’s not ever going to happen while I’m governor. I can promise you.”