IN RAISING city taxes on gas, general sales and hotel rooms -- as the city council is in the process of doing -- a balance must be struck: taxes cannot be raised to high that people are forced to leave the city, but they must be high enough to bring a substantial amount of money to a depleted District treasury. Critics of the tax package, which gained initial approval on Tuesday, say its major accomplishment will be to drive automobile owners outside the city to buy gas and to force shoppers to leave city stores for suburban malls to escape taxes. The critics are wrong.
All indicators show that gas sales and general sales in stores will drop as a result of the added taxes. But the amount of the decrease should be small; and it should have far less impact than envisioned by critics who see the added taxes as breaking the back of businesses in the city. For example, the Greater Washington-Maryland Service Station Association, which lobbied against imposition of the tax, estimates that gas sales will drop by 40 percent. But the city's department of finance and revenue estimates that gas sales in the District will go down only about 16 percent. The service station association says its estimate is a pure and simple guess. It does not take into account the already declining consumption of gas in the city and in the nation. And it does not consider that an available supply of gasoline, conveniently located, could in the long run offset some of the prospective seven-cent difference between the cost of a gallon of gasoline in the District and in Maryland.
The increase in the sales tax, from 5 to 6 percent, is also viewed by some as an incentive for businesses and customers to leave the city. But in other areas of the country where sales taxes have been raised higher than in nearby jurisdictions, a one-percent difference in the sales tax has had little or no effect on the amount of sales. The biggest decline in business as a result of a rise in the sales tax was 6 percent, according to the revenue officers. The city's estimate of the drop here is that it will be about 4 percent. According to tax experts, that is an outside estimate; the drop will probably be less. Even a 4-percent decline in sales is hardly the exodus of customers that some fear will result from the tax increase.
The major cause for concern about the tax package is not that it is too large, but rather that it may not be large enough. The whole package of taxes is expected to raise $15.6 million by Oct. 1. It is a part of the mayor's financial plan to reduce the year's prospective deficit of about $172 million. A major part of that plan -- a $61-million supplement from Congress -- has already met with defeat. On Thursday, the Senate approved a supplement of about $45 million, some $16 million less than the city has requested. The result is that a large deficit still looms for the District on Sept. 30, at the end of the financial year, despite the congressional supplement and the tax package. No one likes to pay added taxes. But no one wants the city government to default. The council should give the tax package final approval. And the local business community should be offering support for this necessary financial remedy.