O'Malley proposes raising sales tax

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ELLICOTT CITY, Md. — Gov. Martin O'Malley yesterday proposed raising the state's sales tax by 1 cent and expanding it to include health clubs, tanning salons and property-management companies.

The state sales tax would increase from 5 cents on the dollar to 6 cents — placing it in line with Pennsylvania and West Virginia and above Virginia, which charges 5 percent and the District, which charges 5.75 percent.

Delaware does not charge a sales tax, although it charges a gross-receipts tax, similar to a sales tax on business.

"This whole package is going to be a mixed bag," Mr. O'Malley said. "Any one piece, you know, will affect some people more than it affects others. The one piece that will affect all of us is the sales tax."

Mr. O'Malley also proposed cutting the state's property tax 3 cents — to 8.2 cents per $100 of assessed value.

Critics called the rollout of Mr. O'Malley's most important policy to date — his plan for closing the state's $1.5 billion budget deficit — elaborate theater designed to confuse Maryland voters.

"This is O'Malley's Traveling Magic Show," said Senate Minority Whip Allan H. Kittleman, Howard County Republican. "What he's doing with one is hand is he's distracting you and saying look at all these wonderful things ... and with his other hand he's picking your pocket."

Mr. O'Malley, a Democrat, said he hopes to raise a combined $804 million through the penny increase and the expansion of the sales tax, which is considered to be a regressive form of taxation that hits lower income families hardest.

"The sales tax, which by itself, I would agree is regressive," Mr. O'Malley said. "It is not regressive when you consider it in conjunction with a reduction in property taxes and a reduction in income taxes."

Mr. O'Malley made the announcements at the Howard County home of Steven and Penny Boughn. It marked the second day in a row that the governor used a Maryland home as a backdrop to announce tax plans that address the budget deficit.

On Wednesday, Mr. O'Malley proposed changing the state's income-tax structure to create modest tax cuts for about 95 percent of residents while raising taxes for about 3.7 percent of the state's wealthiest residents.

When considered together, Mr. O'Malley estimated that 83 percent of state residents would pay less in taxes because he thinks that the income-tax and property-tax reductions will add up to more savings than people will spend on the sales-tax increase. However, he said the number could vary, depending on individual choices.

A coalition of Maryland business organizations yesterday released a study that found the proposals could result in thousands of job losses.

The study, examining how the tax proposals will affect Maryland businesses, was conducted by Ernst & Young's Quantitative Economics and Statistics Practice. It also found that almost 40 percent of the sales-tax increase would be shouldered by businesses.

Ronald Wineholt, vice president of government affairs for the Maryland Chamber of Commerce, said the organization would like to see additional government cuts and help from revenue generated by legalizing slot machine gambling.

While Mr. Wineholt said the business community is still waiting to see the big picture unfold, he estimated that there were "at least half a billion dollars in new taxes for business that we've seen so far."

• This article is based in part on wire reports.