O'Malley puts 'economic recovery' ahead of tax increases

In an interview with The Washington Post's Sarah Lovenheim, Gov. Martin O'Malley shares his plans for easing health-care reform costs and reversing unemployment trends in Maryland.
By Aaron C. Davis
Washington Post Staff Writer
Friday, January 22, 2010

Gov. Martin O'Malley (D) said Thursday that Maryland should not consider tax increases or other drastic measures to correct a long-term budget imbalance until the state reaches "a point of economic recovery" -- a condition that economic analysts say won't be reached until at least 2012.

The comments marked O'Malley's most direct response yet to an election-year attack accelerated this week by Republicans after he released his budget proposal. Critics have said that the final spending plan of O'Malley's term, which relies heavily on borrowing and federal stimulus money, is setting up Marylanders for a broad tax increase in 2011 should he be reelected.

Tax "decisions are best informed when we get to a point of economic recovery," O'Malley said Thursday in an interview with reporters and editors at The Washington Post. "I think it is counterproductive to raise any tax in the midst of a recession and the unemployment that we have. And frankly, I hope any tax increases that I've had to do as governor are behind us and not ahead of us."

When pressed on whether he was leaving open the possibility of raising taxes should he be reelected, O'Malley did not rule them out. He said that after taking office, he supported a $1.4 billion tax increase, the state's largest, to close a budget gap he inherited. And he said that while dealing with the recession, he has cut more from the budget than any Maryland governor.

"I think I've demonstrated my ability to make the tough decisions necessary to keep our state strong and protect the best interests of our people," O'Malley said.

Although Maryland is in relatively good financial health, Republicans say they will focus on O'Malley's record of fiscal management heading into the November election. They say that with the state's proximity to Washington, its federal contracting business and a far lower unemployment rate than the national average, Maryland shouldn't need to borrow and use the kind of accounting maneuvers that O'Malley has proposed to cover roughly half of its nearly $2 billion shortfall.

On Thursday, O'Malley tried to cast the state's fiscal woes as not systemic but caused by the recession. He disputed the term "structural deficit," which has been used recently by Republicans and Wall Street analysts to describe Maryland's problems.

"I take some issue with their calling the deficit from this national downturn a structural deficit. I would call that a cyclical deficit," he said.

But O'Malley also said he would be hard-pressed to support even nickel or dime tax increases on alcohol, which have been proposed by Montgomery County lawmakers to restore funding cut from programs for the mentally ill. Maryland's tax on beer has not changed since 1972; its tax on hard alcohol has remained the same since 1955.

"The biggest solution to the challenges we face is to have our economy come back and start to grow again," O'Malley said. "Any increase in alcohol tax or beer tax is not the fix."

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