Maryland House leader puts billion-dollar sales tax expansion on the table

Facing down a future multibillion-dollar budget hole, some Democratic leaders in the Maryland General Assembly have a plan to raise money by expanding the sales tax to services.

But it’s not popular among businesses, Republicans or even among all Democrats in Annapolis.

“This is a conversation starter,” Del. David Moon told his colleagues at the start of a rare Monday morning bill hearing.

Moon, the Democratic majority leader of the House of Delegates, has taken up the mantle of pushing to raise more money from the sales tax, four years after the exact same proposal was rejected just before the coronavirus pandemic swept into Maryland.

Moon said he’s had “a very nervous eye toward what’s going on with the state budget” and feels lawmakers need to make difficult decisions about how to raise enough money to pay for an ambitious public schools improvement plan, transportation system upgrades and keep the state’s budget in balance.

His proposal is an attempt to address those needs “with a single vote,” rather than “attempting to cobble together a revenue package out of many disparate options until we get desired numbers.”

Moon’s proposal would drop the state’s sales tax to 5% from 6%, but at the same time expand it to an array of services that aren’t currently taxed, from accounting to landscaping to contracting to dry cleaning.

It would raise an estimated $3 billion per year once fully in place.

Maryland has a tough financial picture, both short term and long term, with insufficient money coming into state coffers to pay for government services and programs. Two key drivers of the long-term shortfall are the growing costs of the Blueprint for Maryland’s Future education plan and the state’s long-term transportation construction plan — which is already facing cuts.

And last week, state economic forecasters said about $250 million less will come to the state this year and next, combined, than previously predicted, requiring state lawmakers to further tweak the already-tight state budget that they’re reviewing.

The governor and state lawmakers are required each year to agree on a balanced state budget.

Gov. Wes Moore, a Democrat, presented a balanced budget proposal to lawmakers in January, and has repeatedly said that he has “a very high bar” on new or increased taxes.

And Senate Democratic leaders, who are putting forward their version of Moore’s budget this week, have said there’s no need to consider taxes — at least not this year.

But Democratic leaders in the House of Delegates have signaled more of a willingness to consider tax increases.

“We just have to have the tough discussions and figure it out, quite frankly,” said Del. Vanessa Atterbeary, chair of the House Ways and Means Committee that heard nearly three hours of testimony on Moon’s sales tax bill on Monday.

“This is what this committee does, whether people like it or not,” said Atterbeary, a Howard County Democrat. “We are a revenue committee. This is our job.”

Moon said he’s open to tweaking his bill — maybe exempting certain services from the tax, exempting business-to-business services or keeping the sales tax at 6% but adding only selected services.

“This bill is a discussion point,” he said. “You can go in many directions with how you take this.”

Moon had conditional backing from the state teachers’ union, the largest union for state government employees and a progressive economic think tank. They agreed with Moon in principle, but said the sales tax expansion should be considered along with other proposals like closing corporate tax loopholes and helping low-income residents with better tax credits.

They were far outnumbered by those who opposed the bill, in what was a near-identical repeat of 2020 when the bill was last considered.

Representatives from business and trade groups, as well as individual business owners, sat patiently in the hearing room for their turn to have two minutes to urge lawmakers to defeat the bill.

Real estate agents and builders said the expanded sales tax would drive up the cost to build, buy or maintain a home. Accountants and tax professionals said their clients would be harmed. A car wash owner said people might wash their cars at home instead, sending untreated runoff into storm drains and local waterways, harming the environment.

“It will lead to increased costs not only on the backs of Maryland’s small businesses, but also their clients and customers,” said Mike O’Halloran, state director for the National Federation of Independent Business.

Several opponents suggested that instead of raising money through taxes, the state should find areas to cut.

Del. Jason Buckel, the House Republican minority leader, questioned why the sales tax change is being considered more than two-thirds of the way through the General Assembly session, just as a key procedural deadline is looming next Monday.

Known as “crossover,” bills must pass either the House of Delegates or the state Senate and cross over to the other chamber in order to have the best chance of passage.

“What is the value of doing this this late in the game this session?” Buckel asked Moon, noting opposition to tax changes from the Senate and the governor.

“What’s the point of us, on crossover week, doing this?” he asked.

Moon responded: “I can’t control what other people do. I can only do what makes sense, in my opinion, for Maryland and the House.”

Added Atterbeary, the committee chair: “We’ve seen plenty of things come up the week of crossover.”

The sales tax bill is not yet scheduled for a vote. The 90-day legislative session is scheduled to adjourn on April 8.

Pamela Wood

pamela.wood@thebaltimorebanner.com

Pamela Wood covers Maryland politics and government. She previously reported for The Baltimore Sun, The Capital and other Maryland newspapers. A graduate of the University of Maryland, College Park, she lives in northern Anne Arundel County.

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