States seek to increase sales tax
A growing number of state and local governments are considering big sales tax hikes to pump up sluggish revenue, cut property taxes or pay for new programs.
The sales tax increases would be large - generally 1 cent per dollar or more - and produce billions of dollars in new tax revenue.
By contrast, few significant proposals have been made to raise state income taxes.
Polls show that the sales tax is the least-hated major tax. The property tax is disliked most, followed by the income tax, according to polls by the Tax Foundation and other groups.
"It's a strange thing," says Indiana state Sen. Lindel Hume, a Democrat. "The sales tax is without question a regressive tax that hurts the poor. But every income group prefers it to other taxes." In response to voter concerns, Hume has proposed ending his state's residential property tax by raising the sales tax to 7 cents from 6 cents and lifting the state's flat-rate income tax to 5 percent from 3.4 percent.
Indiana Gov. Mitch Daniels, a Republican, backs a 1-cent sales tax increase, too - but not an income tax hike - to slash property taxes.
A 1-cent sales tax increase would raise nearly $1 billion annually in Indiana.
Other proposed sales tax hikes:
- Maryland. Democratic Gov. Martin O'Malley wants to raise the sales tax to 6 cents from 5 cents to close a budget shortfall estimated at $1.7 billion. He called the legislature into special session, starting Monday, to consider the proposal, which would raise more than $700 million a year.
The plan also would expand the sales tax to cover health clubs, tanning salons, real estate management and other services. "The sales tax is just one part of a comprehensive plan to solve a big structural deficit," says Christine Hansen, the governor's spokeswoman.
- Florida. The Legislature, meeting in a special session scheduled to end today, is considering proposals to raise the sales tax 1 or 2 cents to help pay for a big property tax cut. The Florida Senate's latest proposal would cut property taxes $12 billion over five years - if voters approve Jan. 29 - but postpone a decision on a sales tax and other revenue substitutes.
- New Jersey. Voters will decide Nov. 6 whether to dedicate 1 cent of the sales tax to property tax relief. The Legislature raised the sales tax to 7 cents from 6 cents last year and wants voters to pass a constitutional amendment approving the plan.
- Cook County, Ill. The county, which includes Chicago, is debating whether to hike its sales tax by 2 cents to 2.75 percent. County Board President Todd Stroger says the money is needed to avoid a budget deficit and to pay for fixes to the criminal justice system.
It's unclear how many sales tax proposals will pass. The Florida Legislature is deadlocked. A Washington Post poll last week showed that voters strongly oppose a sales tax hike in Maryland.
Nationwide, the slump in housing prices and construction is hurting sales tax collections because people are buying fewer construction materials and home furnishings such as appliances and furniture. Sales tax revenue rose 3.3 percent in the first half of 2007, the smallest increase since 2002.
Cutting property taxes by raising the sales tax is about politics, not tax policy, says Nate Bailey of the Tax Foundation, a Washington, D.C., group that studies tax issues. "Our tax code is complex because politicians seek political dividends without really shifting economic or tax policy," Bailey says.
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