Ehrlich's plan to cut Md.'s sales tax has big implications for governor's race

Speaking with The Washington Post's Aaron Davis and John Wagner, Md. Gov. Martin O'Malley (D) and his opponent, former Md. governor Bob Ehrlich (R), talk about their record on education and plans for the next four years.
By John Wagner
Saturday, September 25, 2010; 9:21 PM

To win his job back, former Maryland governor Robert L. Ehrlich Jr. promises to roll back the state's sales tax rate to where it was when he left office. That might be good for consumers, but it could cost the Maryland treasury more than $600 million a year - and Ehrlich has yet to say how he would pay for it.

The Republican's pledge has emerged as the costliest promise by far in a competitive rematch with Gov. Martin O'Malley (D), and the implications extend well beyond the price tag.

For Ehrlich, the decision by O'Malley and his fellow Democrats to raise the sales tax from 5 percent to 6 percent reflects a broader attitude in Annapolis that needs to be checked. It was the largest part of a package of $1.4 billion in tax increases passed during a 2007 special session called by O'Malley to balance the budget.

In an election year in which voters are anxious about the economy, Ehrlich has warned that even bigger tax increases could be on the way if O'Malley is reelected - including an expansion of the sales tax to services now exempted, including haircuts, auto repairs and gym memberships.

For O'Malley, Ehrlich's pledge to roll back the tax rate amounts to an "empty promise." By his accounting, it is but one of many Ehrlich plans unlikely to be realized because of the budget shortfalls the state continues to face. As O'Malley put it recently, his predecessor is trying "to eat cake and lose weight."

O'Malley said the 2007 tax increases were needed to address the "fiscally irresponsible policies" he inherited from Ehrlich.

And although O'Malley has not ruled out additional tax increases if reelected, he said Ehrlich is engaging in "fear-mongering" and that more budget cuts will be used to close a $1.1 billion projected shortfall in next year's budget.

There is no other levy that the government imposes that touches as many Marylanders - or that they pay as often - as the sales tax.

As a result of the rate increase passed under O'Malley, consumers in Maryland pay about 40 more cents in sales tax for a basic pair of jeans, another $2 for an iPod and another $10 for a typical 46-inch flat-screen TV.

Last year, Maryland collected almost $3.8 billion in sales taxes - a source of revenue second only to personal income taxes in the state's operating budget.

Legislative analysts say that cutting the sales tax rate would decrease those collections by $650 million to $700 million a year by the time Ehrlich's plan would take effect.

In an interview, Ehrlich declined to say how much his plan - which he first floated in April - would cost or how he would pay for it.

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