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Some taxes are worse than others

With barely a moment to spare, the Baltimore City Council is moving forward this week to enact tax proposals designed to avert the worst consequences of the current budget crisis. Measures already given preliminary approval would generate more than $20 million — enough to prevent layoffs and other damaging cuts to the police and fire departments. Others due for votes starting on Thursday should bring the projected total new revenues up to near the $50 million figure Mayor Stephanie Rawlings-Blake sought to restore funding to parks and recreation, health programs, sanitation and other key municipal functions.

Make no mistake, none of the tax increases the mayor or council members proposed is a good thing. All will cause pain to one degree or another to citizens, businesses and civic institutions in a city that has enough problems already. But the consequences of not raising new revenues — particularly to public safety — would be more detrimental. For that reason, the council is to be commended for its action this week.

That said, some of the tax proposals are better — or, at least, less damaging — than the others, and the choices the council has made about which ones to pass and which ones to reject are questionable. In an effort to avoid a container tax that has been the target of an intense lobbying and advertising push by the beverage industry, if not so much by ordinary Baltimore citizens, the council has enacted or is pursuing tax increases whose consequences for the overall welfare of the city would be worse.

The beverage tax has its flaws. It would surely have some effect on pushing customers from city merchants to the counties. There's also reason to question whether it would raise the full $11 million the Rawlings-Blake administration estimates, given the fact that it would likely have an impact on people's behavior, causing them to consume less or to purchase larger containers, which would be exempt from the tax.

But it also has its virtues. For one, the tax is entirely voluntary. Residents could choose to avoid buying beverages that are affected by the tax. For another, although much of the opposition has come from the beverage distributors who would pay the tax, the levy would actually be passed on to consumers, diffusing its impact. Finally, if you tax something, you get less of it, and in this case, that's not such a bad thing. It would mean less litter and less consumption of sugary sodas that contribute to obesity.

The same cannot be said of the major new tax proposal City Council President Bernard C. "Jack" Young has put on the table this week to replace most of the revenue from the beverage tax. Ms. Rawlings-Blake proposed increasing energy tax rates for residential, commercial and nonprofit users. Mr. Young is proposing adding industrial users to the mix on the grounds that it's only fair that they, too, shoulder some of the burden.

But because of the vastly greater amount of energy used by industry, such an increase would not be equitable. Consider this: Increasing the rate for all commercial and residential customers by 15 percent and increasing the rates for nonprofits by more than 50 percent would raise about $8.2 million; adding industrial users would, by itself, raise $9.1 million a year. That's a big burden spread among a small number of firms.

Back to the principle that what you tax, you get less of. Which is worse, a tax that means less consumption of bottled beverages, or one that means less job-creating (and taxpaying) industry?

A similar argument can be made about the relative merits of the beverage tax and the income tax rate increase the mayor proposed and the council is poised to enact. If there was an element of the mayor's revenue package that the council should have been trying to find a way to replace, the income tax increase, not the beverage tax, should have been it. But the hundreds of thousands of taxpayers who will be affected by that $5.9 million increase haven't taken out radio and newspaper ads, and the beverage industry has.

The situation is reminiscent of the atmosphere in Annapolis during the 2007 special legislative session Gov. Martin O'Malley called to enact a series of tax increases. First, the legislature considered extending the sales tax to health clubs, tanning facilities and massage therapists. Those industries launched a major lobbying push, and the idea was rejected in favor of a tax on lawn services, auto repair and arcades — until those industries made a stink. At the last minute, the proposal switched to a computer services tax, which passed because that industry wasn't able to cobble together a lobbying effort in time. The decision had nothing to do with the merits of the proposal and everything to do with who was left standing when the music stopped. The legislature regretted the decision and repealed it a few months later.

With the deadline for action on the budget fast approaching, the music is about to stop in City Hall, too, and the council needs to start making decisions not based on who complains the loudest but on which tax proposals would do the least damage and produce the most good.

Copyright © 2021, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad

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