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updated: 11/20/2012 6:54 AM

Los Angeles to rival Chicago with highest sales tax

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  • Chicago has the highest sales tax in the country at 9.5 percent. The Los Angeles City Council is considering matching that.

      Chicago has the highest sales tax in the country at 9.5 percent. The Los Angeles City Council is considering matching that.
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Bloomberg News

Los Angeles shoppers looking for just the right satin blindfold or Whip Me stockings at Agent Provocateur's lingerie boutique on Melrose Avenue may soon pay as much tax as customers at the company's Gold Coast store in Chicago, and more than at the one on Madison Avenue.

The city council, which faced $1.6 billion in deficits over the past four years, is to vote Tuesday on whether to ask residents to boost the local sales tax 0.5 percentage point, bringing the total levy -- local and state -- to 9.5 percent. That would tie Los Angeles with Chicago for the highest rate of the 10 largest U.S. cities. New York City is 8.875 percent.

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"Our approach to dealing with our budget shortfalls has been to cut," said Edward Johnson, a spokesman for City Council President Herb Wesson, who backs the sales tax proposal. "If we continue to cut, we will drastically affect the services that we deliver to our citizens."

California's municipalities have struggled to stay afloat by curtailing staff and services amid falling revenue and rising employee costs. The second-biggest U.S. city by population can't impose higher sales taxes without going to the voters of Los Angeles, and is limited in raising real-estate levies under the 1978 law known as Proposition 13.

The tax increase would affect more than London-based Agent Provocateur, owned by 3i Group Plc, Britain's biggest publicly traded private-equity firm. The company, which sells stockings with "Whip Me" spelled out in the backseam for $70, opened its first U.S. outlet on fashion boutique-lined Melrose Avenue in Los Angeles.

Cars, clothing

In addition to clothing, the tax would apply to cars, prepared food, nonprescription drugs, household goods and other merchandise. A vote last week showed a more than 2-1 advantage for tax supporters on the City Council.

If approved by the City Council, a referendum would be held in March. That would be just four months after voters approved Proposition 30, boosting the statewide sales levy to 7.5 percent from 7.25 percent, with proceeds earmarked for education.

The total state and local sales tax in Los Angeles is now 8.75 percent. Beginning in January, the new state levy will raise that to 9 percent. The city's proposed increase would bring the total to 9.5 percent. That would equal Chicago and be higher than the rest of the 10 largest U.S. cities, according to data from the Tax Foundation, a nonpartisan research group based in Washington.

Mayor Antonio Villaraigosa, a Democrat, said the city's proposed increase would raise more than $200 million a year in additional revenue, closing most of a $216 million gap in the budget of $7.2 billion for fiscal 2013. The alternative, he wrote in a letter to council members, would be to fire as many as 500 police officers.

Further cuts

With the passage of Proposition 30, "It is clear that voters were unwilling to accept further deep cuts in education and other critical programs," the 59-year-old mayor said.

Villaraigosa premised his support of the tax on City Council approval of changes in the money-losing city zoo and the convention center, perhaps putting them under private management to save money, as well as eliminating 209 non-police jobs.

Former Mayor Richard Riordan, an 82-year-old Republican who is campaigning to replace guaranteed city pensions with 401(k)- type retirement plans, considers the proposed sales tax increase a "pension tax," spokesman John Schwada said. The city contributed $342 million toward employee retirements this year, according to a report by City Administrative Officer Miguel Santana.

"This is a tax to support, care and feed an outdated, broken pension system," Schwada said. "To say this is about saving 500 police jobs is malarkey."

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