Mayor Marion Barry, grappling to solve the District's financial crisis, yesterday proposed increasing the city's general sales tax rate from 5 to 6 percent -- an increase of 20 percent -- and abandoned as unworkable a new 5 percent tax on professional and trade services that he had proposed only one month ago.
The disintegration of the service tax proposal was the latest indication that a budget-balancing plan out-lined by Barry last month with great fanfare has been steadily falling apart.
For the past several days the mayor and key aides in his 16-month-old administration have been scurrying to find a workable solution to the city's financial ills. The activity comes in the face of increasing concern in various sectors of the city about the way the mayor is handling the budget crisis.
Barry proposed the service tax March 6 as part of his plan to stave off a projected budget deficit of $170 million.
Key City Council members, congressional leaders and citizens and business groups have been critical of the plan. They say it did not propose sufficient spending reductions; proposed to lay too many workers; would unfairly burden the business community with new taxes, and sought dangerous cut in such key city services as youth employment.
Barry had proposed $24.3 million in new taxes and user fees, a $61.8 million supplemental federal payment. $40 million in short-term loans and $46 million in spending reductions, including the elimination of 1,223 jobs -- 546 through layoffs. The $5.2 million service tax was part of the tax package.
Barry appeared yesterday before the Senate District Appropriations subcommittee and was told by its chairman, Sen. Patrick J. Leahy (D-Vt.), that the city probably would not receive the full $61.8 million supplemental payment.
Leahy told the mayor that the request appeared to include funds for some expenditures that the District should have anticipated, rather than the kind of unexpected outlays usually paid for through supplemental appropriations.
Leahy did not indicate how much the request might be reduced. But any cut would throw Barry's plan off course, since he is counting on the full $61.8 million to balance the budget.
The Barry announced his decision late yesterday in a letter to Council Chairman Arrington Dixon which stated that the revision was made in response to opposition to the service tax voiced by Council members.
Barry expressed concern that the council act on the taxes "early enough in the fiscal year to have sufficient impact," noting that "each day that passes without action limits further our abilities to respond effectively" to the budget crisis.
The proposal would raise the District's current 5 percent general sales tax to 6 percent, Virginia currently imposes a 4 percent sales tax and Maryland levies 5 percent -- a situation that Barry aides said could deter some consumers from doing their shoppingin the District.
Barry said, however, that the increase was "preferable to the other major option, an individual income-tax increase, which falls exclusively on D.C. residents and which could drive middle-income citizens to the suburbs."
The sales tax is considered a regressive tax because it is not based on the ability to pay and generally has its greatest impact on low-income residents. To offset this factor, Barry has proposed a new income-tax credit ranging from $3 to $5 per family member for sales taxes paid. The credit would be granted to families with incomes under $15,000 a year.
Barry said that the tax increase would raise $5.2 million this fiscal year, the same amount that the service tax would have raised, according to projections.