November 06, 2007

Maryland: Pity the Poor Gym Rats

It's one of those tax policy debates where the battle being fought is basically principle against power. As Maryland lawmakers debate whether or not to expand the state's sales tax base to include personal services such as health clubs and tattoo parlors, lobbyists are emerging from the woodwork to argue that their particular industry is too precious to be taxed. Here's a health club owner explaining why her services shouldn't be taxed, as quoted in today's Baltimore Sun:
"People are trying to save their own lives," Brick said, "and we want to tax them for it?"
Of course, pretty much any producer of goods and services can make a similar case for why their product is socially beneficial, or is a necessity of life, or helps grow the economy, etc. If we exempted all the things we like from the sales tax, we'd be left with... cigarettes and beer. And maybe tax preparation. And you'd have to have a much higher rate on this super-limited base to raise any money at all.

It's tax policy 101: the broader the tax base, the lower the tax rate has to be to bring in the revenue you need. The closer Maryland lawmakers can get to taxing all personal consumption uniformly, the less likely they'll be to have to raise the tax rate down the road.

And, conversely, every time lawmakers cave to the tax-break demands of lobbyist for auto repairs, or tattoo parlors, or dog grooming, the more likely it becomes that the tax rate on the remaining base will be increased.

And there's a basic fairness argument for taxing services, too. In general, if a Maryland consumer spends $20, it shouldn't matter whether it was spent on a pair of scissors or on a haircut. The law shouldn't discriminate.

As quoted by the Sun, an outraged health club member misses this point completely:
"Any time they raise my taxes, I'm not a fan of it...But if the state is going to be a nanny and they are throwing around all these taxes, they should at least be consistent in their message."
But of course, consistency is exactly why lawmakers should tax health clubs.

For more on taxing services, check out this ITEP policy brief.


At 1:21 AM, Blogger Luis de la Rosa said...

Exactly - unfortunately it doesn't seem like lawmakers think about tax fairness when they're doing their deliberations - or perhaps there is not enough time for such deliberations? Especially during special sessions.

I think that the computer services industry should not have been singled out. Instead, if Maryland truly needs the revenue from services and if it is determined that it will not adversely affect the economy, then likely something like a 1% tax on all services would raise at least as much (probably much, much more) as applying the 6% tax on computer services.

Also - I think that a services tax would be more progressive than the usual sales tax. The reason is because wealthier individuals spend more on services such as personal trainers, dog grooming, tanning, tax preparation, estate planning, etc.


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