Md. governor’s tax proposals seek nearly $1 billion to balance budget, fund projects

For Maryland Gov. Martin O’Malley, 2012 was not supposed to be about raising nearly $1 billion in new taxes.

This would be the year O’Malley (D) would be remembered, backers thought, for taking the lead on legalizing same-sex marriage, advancing offshore wind power and tackling other progressive policy goals that would resonate with Maryland’s liberal base and bolster his political ambitions beyond the state.

But with Maryland’s ongoing budget imbalance crowding his agenda, and with time slipping away in a second term bereft of big accomplishments, O’Malley’s year has been focused on an array of proposed tax, fee and rate increases needed to continue his record spending on education, health care and public works.

Saying that “everything has a cost” and that to invest in the state’s future he could not close a fifth consecutive budget gap with cuts alone, O’Malley last week asked the legislature to raise income taxes on anyone making $100,000 or more.

He also proposed that the state begin charging a sales tax on certain Internet purchases and said he would seek 18 cents more a gallon in state gasoline taxes to fund increases in road and transit construction that would create jobs. He also asked lawmakers to double water bill fees, boost electric rates and increase state borrowing for environmental projects, affordable housing and school construction.

O’Malley said the spending would position Maryland for growth and propel it out of the post-recession slump ahead of others — including Virginia, where Gov. Robert F. McDonnell (R) has focused more on cutting costs.

Weighing them individually, Maryland voters say they like several aspects of O’Malley’s revenue plan. But when they are taken together, and while the economy remains shaky, the burden of at least $951 million in new costs to the state’s households has taken on a gravity greater than the sum of its parts.

Political analysts say the passage of O’Malley’s tax plans could position him as one of the nation’s most liberal governors and set Maryland apart as one of the purest expressions of Democratic Party values in action.

Failure of large parts of his tax plan, especially if the legislature also bogs down again on same-sex marriage, could undercut O’Malley’s reputation within his party as an effective leader with national potential.

Whether O’Malley succeeds or fails, his ambition for a second major package of tax increases since 2007 risks reinforcing a tax-and-spend stereotype of the governor. In his 2010 reelection campaign, detractors distributed bumper stickers that read “Owe’Malley.” They had predicted he would raise taxes again in a second term.

If passed, O’Malley’s revenue proposals combined would rival his record-setting 2007 package, which included a one-cent bump in the state’s tax and adoption of a progressive income tax, and which together have brought in as much as $1.1 billion annually.

More damaging, however, than attacks from Republicans, who are a small minority in the state legislature, is the criticism that aspects of the governor’s proposals have drawn from key Democratic lawmakers.

Robert J. Garagiola (D-Montgomery), the state Senate majority leader whom O’Malley used redistricting to position for a run in the state’s 6th Congressional District, said he could not support the governor’s plan for a gas tax. Garagiola wrote a bill for a 10-cent gas-tax increase last year and would be responsible for rallying votes for the governor’s plan this year.

Longtime allies, perhaps looking out for their own political futures, have distanced themselves even further.

“It’s a hard agenda even for progressive Democrats to work through,” said Howard County Executive Ken Ulman (D), who has begun raising money for a 2014 gubernatorial bid. “It certainly gives ammunition to his opponents. . . . It doesn’t seem like there’s an overall focus or agenda of how it all comes together; it’s scattershot.”

A Washington Post analysis of five of O’Malley’s revenue proposals also found that the package may not be as progressive or as focused on the wealthy as the governor has suggested.

Mostly because of the gas-tax hike, a Maryland resident making $34,000 annually could pay an extra $112, or 5.8 percent extra, in taxes, fees and higher electricity rates under O’Malley’s proposals.

A family of four earning more than $500,000, however, would pay proportionally less: $1,347, or an increase of 2.9 percent.

Hundreds of thousands of families in Washington’s Maryland suburbs could face the largest percentage increase in state taxes.

A dual-income family of four earning $175,000 would face an additional $801 in costs, a jump of nearly 7 percent.

Senate Minority Leader E. J. Pipkin (R-Cecil) noted that O’Malley’s measures target earners making less than what President Obama has classified as high-wage earners, those making $250,000, or more.

“Clearly, the governor didn’t get the message. It’s even more regressive than what the president has proposed,” Pipkin said.

In an interview Friday, O’Malley reiterated that he knew his proposals would not be popular. He said he had given a good deal of thought to how they would affect families, including those with lower incomes.

The governor stressed that his income-tax changes, which limit deductions and exemptions, “will have no effect on 80 percent of us.”

O’Malley acknowledged the burden on all income classes from a higher gas tax “is a tough one.” But he said: ‘We all use roads, and we all benefit from an economy where all of our people are employed.”

Asked what the tax proposals might mean for his own political future, he said: “I don’t think terribly much about what this does for my political future. I’m not that smart.”

Sen. Richard S. Madaleno Jr. (D-Montgomery) has previously introduced legislation for Maryland to institute an Internet sales tax on some purchases, as well as other key provisions O’Malley adopted this year as part of his budget. He credited the governor for getting serious about a long-term plan to fund the state’s priorities.

“He’s saying we can’t keep kicking the can, kicking our problems, down the street,” Madaleno said. “Through this budget, as a policy document, he’s saying I’m not going to do that, because I don’t have much time left on the street.”

Staff writer John Wagner contributed to this report.

Aaron Davis covers D.C. government and politics for The Post and wants to hear your story about how D.C. works — or how it doesn’t.
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