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Diverse Businesses Rally Against O'Malley Plan to Expand, Increase Sales Tax

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Special Report: Special Session 2007: Budget Crisis

By Kate Prahlad
Maryland Newsline
Thursday, Nov. 1, 2007

ANNAPOLIS - Massage therapists, Realtors and health club employees and patrons swarmed the State House Thursday to protest Gov. Martin O'Malley's proposal to expand the sales tax to include those services.

The governor's proposal would raise the sales tax from 5 percent to 6 percent, while expanding it to cover services such as health clubs, tanning salons and massages. The increase would generate $730 million, the expansion $74 million.

"Housing is not a luxury," said Maryland Association of Realtors President Carole Maclure at a pre-hearing rally. "It's a right and an obligation, and it should not be lumped in with luxury services."

Supporters of the new and expanded tax called it a necessary piece of the whole plan to fix a $1.7 billion state budget shortfall.

"It all works together in his comprehensive package," said Michele Lewis, legislative director for the Maryland branch of American Federation of State, County and Municipal Employees.

But supporters were hugely outnumbered Thursday.

Lisa Soto, a Realtor from Columbia, said if agents' services are taxed, the cost will be passed right down to consumers in the form of rent increases.

"I don't think legislators understand that," she said. "We'll have no option."

Health club employees who gathered at a rally a few hours later echoed those statements, arguing that if raising cigarette taxes is meant to deter smoking, then they fear the results of taxing health club membership fees.

Rising costs for food, fuel and electricity are already pulling at people's wallets, said Pam Bennett, an employee of the Maryland Athletic Club. She worries that people will choose to cut out their health club memberships first.

"We're like health care workers," said Mary Bell of the Maryland Athletic Club in Timonium. "Prolonging life is not a luxury."

Other associations representing those in the hotel, small business, restaurant and retail sectors said the tax would "tax them out of existence."

"Small business is the backbone of America, and you're breaking it," said Nancy Klinefelter, president of Baltimore Glassware Decorators.

Those same small businesses would also be hurt by the governor's proposal to restructure the income tax, said Melvin Thompson of the Restaurant Association of Maryland.

Under O'Malley's changes, married couples earning between $200,000 and $500,000 annually would be taxed at 6 percent, as well as single taxpayers making between $150,000 and $500,000, raising $163 million towards the budget.

Supporters said the income tax change would make Maryland's current flat tax rate of 4.75 percent more "progressive."

"Voters will like this," said Sean Dobson, executive director of Progressive Maryland.

But Thompson said smaller businesses often fall under the personal income tax rules, and the proposed increase would drain resources and result in layoffs, fewer hours and smaller salaries.

Baltimore County Executive Jim Smith said the plan would spread the budget shortfall through all the constituencies, something that can only be done at the state level.

Not all county officials were completely in support of the plan.

If the income taxes are restructured, Montgomery County would pay 82 percent of the tax's projected revenues, said the county executive Ike Leggett.

"I'm concerned about unintended consequences in the long term, as far as Montgomery County's role as an economic development engine for the state."

Copyright 2007 University of Maryland Philip Merrill College of Journalism

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