A better tax

The Baltimore Sun

Gov. Martin O'Malley's announcement yesterday that he will seek to have the computer services tax repealed is a welcome, if belated, development in righting one of the legislature's more egregious wrongs. The governor didn't endorse the measure when the state Senate first came up with the cockamamie idea during last year's special session, but he signed the bill anyway, so he's no innocent bystander.

In theory, applying the sales tax to services is a good idea as the economy grows increasingly service-oriented. That's especially true if broadening the sales tax might have meant keeping it to 5 percent or less. But applying the new 6 percent sales tax to only one service, and making it technology at that, was a spectacularly bad idea from the beginning.

And it didn't help that in the frenzy of action over complex deficit-reduction and spending plans, lawmakers gave scant opportunity to businesses and others harmed by the proposal to object. It was a last-second idea that caught the industry flat-footed.

While it's clear that a majority of the General Assembly would happily be rid of the computer services tax, finding a way to plug the $200 million hole the decision would create was tricky, particularly as legislators were forced to make higher-than-expected cuts in Mr. O'Malley's budget.

The latest solution - to add greater progressivity to Maryland's income tax rates - brings the legislature back to exactly where things started. It was only after lawmakers from affluent Montgomery County complained about the hit their constituents would take from the so-called millionaire's tax that lawmakers had to tap alternate sources of revenue in the first place.

The income tax should be more progressive. The changes made last year to the income tax were helpful in that regard but ultimately quite modest. Adding two new top tiers, as Sen. Verna L. Jones of Baltimore has proposed, provides a sensible alternative. Exactly what those top rates should be and the appropriate income level for them to kick in can be worked out.

Montgomery County Executive Isiah Leggett and others may not like this proposal, but surely taxing the wealthy is better than going after already beleaguered small businesses. It is, after all, the mom-and-pop firms that hire outside help for their information technology needs.

Lawmakers are cutting plenty from the state budget - just ask those involved with health care, public education and the environment, all of which took significant hits recently in preliminary budget decisions. Maryland's income tax rates may be high compared with other states', but they offer a fairer way to finance state government than almost any available alternative.

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