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Tax Hikes and the Economy

by: Isaac Smith

Tue Sep 16, 2008 at 02:15 PM EDT

Maryland Republicans, as you might expect, opposed Gov. O'Malley's tax increases last year. Though they failed to prevent those tax increases, they understandably want to paint them in the worst possible light, both out of political conviction and out of a desire to hurt O'Malley's chances at reelection. However, their efforts to do so have, to date, come off as... well, like partisan hackery, rather than an honest attempt to assess the economic situation in Maryland. Seemingly ignorant of the fact that this country, Maryland included, has been in an ongoing financial crisis for the past year (one that has gotten significantly worse in the last few days), Maryland Republicans have taken to arguing that anything bad that happens to the state's economy is a direct result of O'Malley's tax increases. Which, if taken literally, is demonstrably false (e.g. Brian Griffiths claiming that the tax hikes are causing the recession in Maryland and again that they are depressing sales tax revenue); and, if taken more loosely -- i.e. that the tax hikes are exacerbating the economic downturn's effects in Maryland -- is usually just asserted, with no attempt to disaggregate the effects of the tax hikes from the broader economic trends.

Case in point: Troy Stouffer's piece in the Sun yesterday decrying the effects of the special session tax hikes on the state's economy. He writes:

Another point I found interesting is that revenue from taxes on cigarettes is also declining. This is because the tax increase of $1 a pack has caused a big drop in the sales of cigarettes. I thought that the increase in cigarette taxes was intended to help smokers quit their "nasty" habit. Why is a drop in cigarette sales seen as a bad thing? Could it be that it was never about reducing smoking but was just another way for the Maryland government to take more money from the citizens of the state?

Now there is an argument to be had here about the wisdom of using tabacco taxes to fund expanded Medicaid services (which Stouffer neglects to mention), but what's glaringly obvious is that, in an economic slowdown (and one accompanied by a dramatic spike in oil prices that has only recently come down), disposable income shrinks, and sales of luxury items like cigarettes will go down. There is the question, of course, of how much and how necessary smokers view their habit, but Souffer blithely ignores that for a liberal conspiracy to gobble up tax dollars.

One other thing to note. Stouffer says toward the end:

The only factor keeping the state economy afloat is our geographical position next to Washington, D.C.

Similarly, the only thing keeping Los Angeles' economy afloat is all the movie stars who live and work there, and the only thing keeping Alaska's economy afloat is oil (well, that and federal earmarks). Not only is it a non-sequitur, it's false: The port of Baltimore is still an economic driver in the state, and thanks to the recent growth in exports, even more so. Maryland, of course, is facing economic problems, but the beginning of wisdom here is having a good grasp of what is actually going on economically in the first place.

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Slow Motion Recession Catching Up With Maryland

by: Nate W

Sun Jul 13, 2008 at 11:04 AM EDT

(Good follow-up to Eric's post on the state's budget deficit. - promoted by Isaac Smith)

Like so many other states, Maryland could be on the cusp of a huge budget shortfall. The Washington Post is reporting that lawmakers learned that a $200 million budget shortfall could be on the horizon if the economy doesn't get better.

Legislative analysts reported that collections of income and sales taxes, the two largest sources of general fund revenue, have fallen short of expectations, a trend that shows no signs of changing soon.

"You probably need to start thinking about what you're going to do . . . if revenues don't meet their targets," said Warren Descheneaux, the General Assembly's top budget analyst.

Yea, I'd say that wouldn't be such a bad idea Mr. Descheneaux. Even though this shortfall isn't nearly as bad as the $1.5 billion gap that required a special session last year, its still around $200 million more than you'd like to see. Especially when there are no signs that this dragging economy is going to tick upwards anytime soon.

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Budget Situation Getting Worse

by: Isaac Smith

Sun Jun 29, 2008 at 12:30 PM EDT

The Gazette has a good overview of how the Board of Public Works' recent $50 million in budget cuts fits in with the downturn in the economy. Those cuts won't likely be the last:

‘‘I think you [would] almost have to go across the board,” said House Appropriations Chairman Norman H. Conway (D-Dist. 38B) of Salisbury. ‘‘You’d have to go back and look at the doomsday budget from special session.”

That prospect has nearly every state agency and interest group that receives state aid on edge.

‘‘We are sort of looking at déjà vu all over again,” said David S. Bliden, executive director of the Maryland Association of Counties. ‘‘Now, we look with great trepidation with the state struggling with a fall in budgeted revenues. And of course, that causes fear that there will be people advocating for solving any future problem on the backs of local governments.”

Department heads and advocacy group leaders say their budgets have already been trimmed to the bone and further reductions will mean delaying spending, eliminating programs or laying off employees.

The article paints a rather dreary portrait: It's possible that fully implementing the Thornton education plan, already delayed, may be put off indefinitely; state aid to local governments may take another hit; and the potential for more budget cuts depends significantly on whether the slots referendum passes this November. So the Stop Slots campaign may find themselves painted in a corner if they're not careful.

At the same time, Maryland has been weathering the recession better than most states: our unemployment rate is only 4 percent, compared to 5.5 percent nationally; and our major industries, e.g., the federal government (including the military), health care, biotechnology, and education, are acyclical in nature. That is, their performance doesn't depend on how the rest of the economy is doing. That said, the persistent rise in oil prices, combined with the continued depreciation of the dollar against the euro and other currencies, means that the national economy, including Maryland's, will likely be in a slump for a while. Unless we start to get a handle on both phenomena, or the federal government decides to increase state aid, more budget cutting, and more severe budget cutting, may be inevitable.

Ironically, that may send the economy into an even deeper tailspin. Louis Uchitelle had a great report a few weeks back describing how the effects of the recession have been relatively muted due to spending by state and local governments, which have accounted for almost half of economic growth since autumn last year. Declining revenues, however, are forcing many states to cut their budgets, which will likely cause the economy to actually contract in the next year, not just grow at an anemic rate. Dealing with that situation ought to be a top priority of Congress -- and the next President.

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Whizzing Budget

by: Gilbert

Tue Jun 10, 2008 at 06:16 PM EDT

Dear Readers,

The final city budget vote whizzed by so quickly Your Gilbert almost missed it. We were busy poking ourselves with sharp pins to keep ourselves awake during yet another set of citizen committee interviews when we heard the words “. . . budget tax rate passes.”

The Takoma Park city council reduced the tax rate by a half cent (not the two cent reduction advocated by council freshman Dan Robinson). For every $100 of assessed value of their homes, resident homeowners will pay sixty and a half cents.

Complaints about the budget process were voiced the previous week by many of the council members. Councilmember Robinson said he had been taken aback when in the course of public meetings with department heads there was no review of their budgets. As Your Ace Reporter Gilbert reported at the time “The budget discussion has largely consisted of department heads being interviewed by the council. These are similar to citizen committee interviews . . . .  In both cases the interviewee tells the council how much they want to serve the city, and the council tells the interviewee how much they appreciate their committee/department.”

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Fact and Friction

by: Gilbert

Tue Jun 03, 2008 at 09:45 PM EDT

This guest  post is by Takoma Park resident Alain Thery.

*FACT*: According to a recent MontCo Planning Department housing study, between 1997 and 2005 Takoma Park residents experienced the highest increase in homeowners' costs in the County (while at the same time facing the highest decrease in median income).

Could this above average increase in homeowners' costs be related in any way to the sharp increases in property tax rates by the City during that period despite high increases in assessments toward the end of the period?  Between 2005 and today, this increase in property taxes was modulated somewhat by a 7% decrease in the rate while assessment during the period rose 30%.

Looking at the 5/27/08 TP Council meeting, it does not look that the Council members in their majority are even aware of the situation that has been created for residents by relentless double-digit annual increases in City budgets approved by past and present Council members.

Is this blindness the result of a clever manipulation by the City Manager that has become . . . 

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Spare Change?

by: Gilbert

Thu May 08, 2008 at 10:08 AM EDT

Dear Readers,

By amazing coincidence (snort!), just prior to hammering out next year’s budget, the Takoma Park City Council was hit up for hand outs by a series of committees and groups.

Not all of them, we admit. The Washington Adventist Hospital Land Use Committee is just forming up and more interested in getting members than money at this point. Safe Takoma, a cross-jurisdictional group (Takoma, DC and Takoma Park) that plans to work on crime prevention through youth programs, among other enlightened means, was more intent on working out a memorandum of understanding with the city than with funding - though funding will be needed ($75,000 budgeted so far).

Hat in hand, Historic Takoma, which has purchased a building in Takoma Junction and is turning it into an office and center to house its records, said it it will “need help” from the city in FY 2009 (note how easily Your Gilbert slips into the bureaucratic jargon, there - “FY” means “fiscal year,” which for you non-bureaucrats means “year. Of course it’s silly and redundant to say “the year 2009,” when “2009” or “next year” would do, but it is much more satisfying to the Bureaucratic Mind to use as many words as possible so they can be trimmed down to impenetrable acronyms).

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Escape . . .

by: Gilbert

Fri Apr 18, 2008 at 05:57 PM EDT

while you still can, Dear Reader!

Too late! The doors have banged shut, the bolts slammed home. The lights are extinguished. An ominous humming noise begins in the dark. Images flash on the screen - a PowerPoint presentation! Oh NO, it's, . . . .
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I Suppose Then George W. Bush and the GOP Are the Khmer Rouge

by: Isaac Smith

Thu Apr 10, 2008 at 02:51 PM EDT

So in his latest bout of hysteria, Brian Griffiths informs us that Martin O'Malley (in part) caused the recession through the special session tax increases. Which, if true, would be pretty weird, given that the housing and financial markets, the real drivers of the current recession, began crashing in the middle of last year, whereas the tax increases only took effect in the beginning of this year. Those must be some pretty powerful tax hikes.

Of course, Brian's point (I think) is that the tax increases are exacerbating the recession's effects in Maryland, which is debatable; certainly the Washington suburbs have been doing better than the national average in terms of employment, and Maryland's unique economic features make it more resilient to downturns generally. Things could get worse, however, if the state made the draconian kind of budget cuts that Brian and other Republicans have been clamoring for. As I've noted before, budget cuts during a recession are actually more harmful to the economy than tax increases, since it exacerbates the problem of falling consumption by reducing consumption even further.

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It's Over. Now What?

by: Isaac Smith

Wed Apr 09, 2008 at 08:00 AM EDT

So with the General Assembly's legislative session all wrapped up as of last night, what got accomplished?

  • The Global Warming Solutions Act died in House committee. It's sad that the environmentalists and labor couldn't work together on this issue, since it's clear that strong climate change regulations wouldn't necessarily mean the death of the Sparrows Point steel mill. At the same time, it's hardly a tragedy that it didn't get passed: According to Dawn Stoltzfus of the Maryland LCV, Nathaniel Exum's amendment to have every new climate regulation be subject to legislative approval weakened the bill so badly that it would be better just to start over next year. Or better yet, let Congress adopt a broad climate policy, and we can obviate the concern of potentially losing jobs in Maryland to other states. In any case, the more important measures, in my opinion -- increasing renewable energy and energy efficiency standards -- passed, which will help put Maryland in a better position to transition to a low-carbon economy.
  • Speaking of energy, the Constellation settlement also got approved, and without any provision to regulate the sale of electricity from new plants. This is also good news, as Jay Hancock notes, as it gives Maryland a good place from which it can decide where to go with respect to electricity, be it further deregulation or reregulation.
  • Of the expanded DNA database for criminal investigations, I don't see it in as apocalyptic terms as Paul Gordon does, but it seems true to say that it's of dubious constitutionality. This seems to be part of an unfortunate pattern when it comes to Gov. O'Malley's record on civil liberties.
  • I was also disappointed that neither same-sex marriage nor civil unions got anywhere this session. There was some progress with respect to domestic partnership benefits, but the leadership needs a lot more cajoling on this issue.

One more thing I should add is that I think we can explain the right-ward lurch, as Paul puts it, in the General Assembly this session as a reaction to the economy taking a nosedive and the aftermath of the special session. I know I harp on this, but the inability of states to do deficit spending like the federal government severly constricts what states can do during a recession. We can all admire Gov. O'Malley's courage in taking on the budget deficit last November, but let's not kid ourselves, he paid a price: the sales tax increase, besides being regressive, came at a rather bad time; and unlike the federal government, Maryland doesn't have the ability to pass a stimulus package. Given that environment, it's easy to see how O'Malley and the General Assembly adopted a tempermentally, if not ideologically, conservative stance on fiscal matters.

Of course, that doesn't explain why the Democratic leadership would act timid on social issues or civil liberties issues, as Paul laments; it may be enough to say that 1) there are still many Democrats uncomfortable with the concept of same-sex marriage or abortion rights, and 2) Being "tough on crime" is a well both Democrats and Republicans like to draw from. So perhaps instead of saying the General Assembly tilted right this session, they hunkered down and tried not to rock the boat too much.

UPDATE: Be sure to check Think Progress's Wonk Room, which has a good post on the Global Warming Solutions Act. (h/t to Josh)

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Tech Tax On Its Way Out

by: Isaac Smith

Thu Apr 03, 2008 at 04:00 PM EDT

The much-hated sales tax on computer services will likely be repealed this session. The Senate gave preliminary approval to a bill to replace it with a three-year income tax surcharge of 6.25% on people making more than $1 million a year, as well as $100 million in cuts -- half from the Transportation Trust Fund and half to be decided by Gov. O'Malley. Here's how they voted.
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Taxes, Transformation, and Credit Where Credit's Due

by: Eric Luedtke

Tue Mar 18, 2008 at 04:33 PM EDT

From Evan West in the comments to my previous post:

I can't tell you how frustrating it is to read something that I agree with on an abstract level only to get smacked in the face by what I see as a concrete contradiction.

I see what came out of the special session as a transformational, progressive change.  The O'Malley package was changed, but I think to say that it was gutted is an exaggeration.  There were compromises, no doubt.  Some of them were to the anti-slots factions.  O'Malley's package would have had the legislature enact a slots proposal immediately.  Instead, the compromise was to let the voters settle it.  More democratic that way, right?

O'Malley proposed that the top tax bracket be increased from 4.75% to 6.5% The compromise was 5.5%.  Obviously, this is not sweeping, proletariat-type change, but I'd call it progress.

The corporate income tax increase was boosted from 7% (fairly high already) to 8.25% in the special session version. Again, progress in my opinion.

It also managed to create the largest increase in Medicaid in a generation.

Isn't this what we stand for as progressives?  And yes, I am one.  

It bothers me when we see the first real, progressive change in our tax system in many years, one that took guts and is politically unpopular, pilloried by progressives as "not enough".

Evan's got a point, of course. Maybe we have focused a little too much on the failures of the past few months, rather than the important successes. And referring to what the Senate did as gutting is probably a little over the top. 

I agree that the creation of a progressive income tax structure in Maryland was a very good thing, and long overdue. And whatever complaints I have about the special session are moot now. In the long term, what I'm criticizing is the failure to discuss taxes as a public good - a way to continue to provide high-quality public services - instead of an infringement on individual rights, which is what the right wing thinks. That's the sort of transformational effort to change the playing field of public debate that I was looking for.

But in the interest of giving credit where credit's due: to Martin O'Malley, for having the courage to make the politically unpopular changes to end the structural deficit, something his predecessor was incapable of. To those state senators and delegates who fight for progressive causes, and who over the last few months brought us a progressive income tax, medicaid expansion, improved school funding through GCEI, and a new program to help save the bay. And to those same people for maintaining their commitment to progressive causes in a bad budget time during the current session.

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The Zombie Tax

by: Isaac Smith

Fri Mar 14, 2008 at 08:00 AM EDT

Gov. O'Malley has come out against the computer services tax, which is a good thing. The problem is, however, is that no one seems to know what to replace it with. Adam Pagnucco lays out the situation:

When the Republicans proposed spending cuts and tapping "unallocated funds" to pay for a repeal, the Senate rejected it. When Senate Democrats proposed an income tax surcharge on the rich, Montgomery County officials opposed it. Time is running out: the current session has less than a month left and the computer tax is due to take effect this summer.

The tragedy is that it didn’t have to be this way. Governor O’Malley never proposed this tax. The House of Delegates did not propose it. And there were other ways to raise the money...

Instead, we are left with a looming, devastating tax on a knowledge-based industry critical to the state’s future. Everyone hates it. But no one has figured out how to get rid of it. Surely the Democrats in Annapolis can do better than this.

Now it looks like support is growing for a income tax surcharge that would basically tack on new two tax brackets: 6% for people earning between $750,000 and $1 million and 6.5% for over $1 million. Opposition is coming, once again, from Montgomery County, whose delegation succeeded in watering down Gov. O'Malley's income tax plan last November. Something tells me they might succeed again, and this computer tax that no one wanted will survive.

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Back to Blogging

by: Isaac Smith

Fri Feb 29, 2008 at 11:57 AM EST

Events conspired to keep me away from blogging for the past few days; my apologies. But it seems you guys did fine without me, which is great. My ultimate goal with this blog is to render myself superfluous :-)

Back to current events, I think the big news is that, with the economy going into recession, a lot of proposed spending initiatives in the General Assembly (public financing of elections, for example) are going to be left on the table, not to mention even larger budget cuts beyond those agreed to in the special session. As the Sun observes:

Lawmakers have been looking for $200 million in cuts in O'Malley's proposed budget to compensate for the flagging economy, but now they are saying that could rise to $300 million or more when updated revenue projections come out next week.

We're not alone either: The Progressive States Network, working from a recent report by the Center for Budget and Policy Priorities, has a neat little map of the 28 (!) states currently facing budget deficits or expected to face one in the next year or two. The housing market bust appears to be causing ripple effects throughout the economy, and states, dependent as they are on property tax revenue, are going to feel it particularly hard.

Now, this may sound like vindication to conservatives committed to slashing the state budget as much as possible (e.g., Brian Griffiths), but this is, in fact, bad news. PSN also quotes from a report by Nobel laureate economist Joseph Stiglitz and Congressional Budget Office director Peter Orszag, in which they note that budget cuts during a recession are, if anything, worse for the economy than tax increases:

Basic economy theory suggests that direct spending reductions will generate more adverse consequences for the economy in the short run than either a tax increase or a transfer program reduction. The reason is that some of any tax increase or transfer payment reduction would reduce saving rather than consumption, lessening its impact on the economy in the short run, whereas the full amount of government spending on goods and services would directly reduce consumption.

In other words, if the economy is contracting due to a fall in consumption (caused initially by falling home sales and a tightening of credit), it doesn't make much sense for the government to exacerbate the situation by cutting back its own spending, which counts toward gross state income as well. All that will do is make it harder for the state to pull itself out of a downward spiral.

I don't think this means more tax increases from Annapolis, however. Gov. O'Malley's approval ratings took a huge hit due to the sales tax increase from last November, and I doubt he, or the General Assembly, want to take another bite at the apple. What might happen, however, is an attempt to pass combined reporting legislation again, which has more popular support, or efforts to get the federal government to increase aid to the states. If it's true that the US is on the cusp of a major financial crisis, then we're going to need a lot more than tax rebates.

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State Budgets and the Housing Market

by: Isaac Smith

Wed Jan 23, 2008 at 01:23 PM EST

Apropos of Andy's post from yesterday, it's worth noting that lots of states are having fiscal problems right now, owing directly to the collapse of the housing market. Taxes on house sales and associated fees make up an enormous part of state budgets, Maryland included; so when house sales start to go kaput, state houses around the country feel the pinch.

It's also worth noting that every state, with the exception of Vermont, is required to pass balanced budgets; meaning that, unlike the federal government, states can't really immunize themselves from the business cycle without dipping into rainy-day funds; and those don't last forever, as Martin O'Malley realized last year. It also means that policies to protect people during economic downturns -- health care, for example -- are harder to sustain at the state level: Ezra Klein had a great discussion of this problem last year in the Washington Monthly.

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Despite Remaining Deficit, Progress has Been Made

by: Andrew Kujan

Tue Jan 22, 2008 at 11:36 AM EST

So the state still has some budget woes. To be honest though, the special session went a long way towards helping narrow the gap.  If Miller manages to get slots through this session, many of these budgetary worries will disappear for the near future, or thats what we would like to think. 

There is still the issue of an economy on the downturn, and the difficulty in gauging how this downturn is affecting Maryland.  Either way, I believe that the media coverage of the Governor's budget is a bit over the top.  No where is it mentioned that Maryland is constitutionally required to create a balanced budget.  The Governor must submit a balanced budget and the legislature can only cut or restrict from that.

It is this fiscal discipline that keeps Maryland Triple-A bond rated year in and year out, while still allowing state to spend liberally on important social, educational and environmental programs.  Senator Madeleno put it something like this: "Maryland is a state with Liberal spending and conservative, consititutionally mandated money management".  

Can we do better, yes.  Are we doing better than some?   O'Malley and Democrats are doing the necessary dirty work to keep the State running at the level it's citizens deserve.  I can't say the same about our previous Governor.

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Franchot's Speech

by: Isaac Smith

Mon Jan 21, 2008 at 12:10 AM EST

Having read the Comptroller's State of the Treasury report from Friday, it seems to be a pretty good diagnosis of the current economic trends affecting the state and the country, along with a good deal of trumpeting of his efforts to collect unpaid taxes (Franchot critics, take note), some potshots at Martin O'Malley and the General Assembly, and some anti-slots boilerplate. The collapse of the housing market is, of course, driving the current economic downturn, but the hastily-assembled special session on the budget last November may not help matters for Maryland:

I am particularly troubled by the expansion of the Maryland sales tax to computer services.  I spoke out in public opposition to this proposal when it was rammed through during the closing days of the Special Session, and I feel the same way today.  This technology tax, if allowed to stand, will erode Maryland’s competitive advantage in the Knowledge-based economy.  
The computer services tax will take a disproportionate toll on those small and independently-owned businesses that are the backbone of strong communities.  Furthermore, the way in which it was adopted will inevitably diminish Maryland’s hard-earned reputation as a good place to do business.  It is in this spirit of concern that I call upon my friends in the General Assembly and the Governor to repeal the computer services tax, and call upon each of you in this room to join me in this effort. The last thing we need is another tax increase, especially one that will undermine our Knowledge-based economy and damage our long-term economic success.

It is, of course, widely acknowledged that Mike Miller and company chose the computer services taxes for basically, no good reason, so I hope the General Assembly revisits the matter. The problem is, Franchot doesn't propose any replacement sources of revenue, or what he would cut from the budget, if necessary; likewise with slot machines. (And I presume even improved tax collection wouldn't be the entire answer.) Anti-slots advocates, and opponents of draconian budget cuts generally, need to be clearer about what the alternatives are to the fiscal status quo, which right now favors slots. There are plenty of possibilities, some of which Eric discussed a while back; but the problem is, Marylanders are already sore about the sales tax increase, any attempts to change marginal income tax rates are likely to run into opposition from Montgomery County again, and hardly anyone has an appetite for more budget cutting. Consequently, despite all the problems involved with slots, it's going to look a lot more appealing as we head toward the referendum in November.

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Sun Poll: Tax Increases, O'Malley Unpopular

by: Isaac Smith

Mon Jan 14, 2008 at 01:40 AM EST

I don't think Democrats can spin it any other way, so I won't even try: The recent tax increases are not going over well, and Gov. O'Malley is suffering in the polls for it:

Voters are profoundly dissatisfied with the $1.3 billion in tax increases passed during November's special legislative session, and a majority consider the package unfair, according to a new Sun Poll.

As a result, public approval of Gov. Martin O'Malley, a Democrat, has dropped precipitously, particularly among the blue-collar voters he says he sought to protect in crafting a solution to the state's projected budget shortfalls.

Just over a year after O'Malley won 53 percent of the vote, only 35 percent of voters approve of the way he's handled his job.

In one of the nation's most staunchly Democratic states, O'Malley's approval rating is just 8 percentage points above President Bush's rating in the same poll. O'Malley's job approval numbers are also close to 10-year lows in how Marylanders have felt about the work of their governors.

"He's given away all of his political capital on this special session," said Steven L. Raabe, president of OpinionWorks, the polling firm that conducted the survey for The Sun. "He probably needed to do it from a policy standpoint, but one could question the manner in which it was done because it has come at a great cost to his ability to lead the state."

As I said, Democrats ought to take this poll seriously; that said, we can contextualize, to use a term of art, the findings of this poll:

  1. The US is either in, or the threshold of, a recession; given increased anxiety over the economy, therefore, it makes sense that Marylanders are going to be less receptive to tax increases.
  2. It seems much of the discontent is over the sales tax, the most regressive apsect of the special session's budget package, and one that many progressives were concerned about -- especially after the Montgomery County delegation succeeded in watering down Gov. O'Malley's income tax plan.
  3. It would have been interesting to see the Sun's polling firm ask the question, "If you had to choose between the General Assembly's tax package or large cuts to education, transportation, etc., which would you prefer?" Because, of course, that's what matters: It's not "tax increases or ponies," it's "tax increases or reduced investment in public priorities."
  4. This whole affair, I think, is an object lesson in why separating taxes from spending is a really stupid idea, especially in state government, where deficit spending is not an option. It would have been vastly preferable for the General Assembly to have passed the Thornton education plan in 2002, say, with a dedicated revenue stream, even if that made passage far less likely. The alternative is what we have here: People being asked to contribute more to close a deficit (i.e. unspecified government spending) rather than something concrete. One wonders why supposed political geniuses like Mike Miller didn't see this coming.
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Another Fine Mess

by: Isaac Smith

Wed Dec 19, 2007 at 04:27 PM EST

Thought the state's budget problems were solved? Think again:

With a slowing economy, Maryland legislative analysts are projecting another shortfall in the state budget by fiscal 2010 -- though the gap is far smaller than the one that prompted Gov. Martin O'Malley (D) to call a special session this fall.

In 2010, the projected hole in the state's $15 billion general fund is $237 million. It is projected to grow to $263 million the following year, analysts told the Spending Affordability Committee yesterday.

This appears to be one more aspect of what the subprime mortgage crisis -- or "Big Shitpile," as the blogger Atrios has been calling it -- has wrought. States, of course, are heavily dependent on property taxes for revenue, and up until about a year ago, a frighteningly large number of people thought housing prices were going to go up forever. So when housing prices eventually did come down, you had all these mortgages, being bought and sold on the financial markets on the premise that housing prices would indeed go up forever, suddenly go to rot. So now we have the credit markets freezing up, possibly causing a recession; and states, meanwhile, will likely see their revenues fall not just in property taxes, but in sales and income taxes as well. And states, unlike the federal government, cannot run deficits, so we will likely see, as the article states, some more budget cuts in the future. Fortunately, we probably won't need another special session to deal with it.

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Eating Our Own With Our Tail Between Our Legs

by: Melissa

Thu Dec 13, 2007 at 09:43 AM EST

CQ and a number of other sources are announcing that Democrats plan to capitulate to Bush's demands on 11 of the 12 remaining appropriations bills.

The spending bills, combined, are $22 billion over Bush's FY2008 budget request. An initial offer to "split the difference" - so, $11 billion over his budget - was rejected via Jim Nussle, White House Budget Director. 

It appears that the House will draft an omnibus spending bill that will fall within Bush's budget request. And no, they're not taking Rep. David Obey's (D-WI) suggestion to strip out all the earmarks to meet that goal.

The House bill will contain $30-some-odd billion for the war in Afghanistan. When the omnibus reaches the Senate, another $70 billion will be added for the war in Iraq. That $70 billion by the way, comes free and clear of any sort of timetables, benchmarks, standards, or accountability.

Why is this bad? The big reasons:

1) The federal government is currently running on a continuing resolution. In 2006, Congress failed to pass the FY2007 spending bills so they punted and funded all government programs at FY2006 levels.

This caused hiring freezes, delays and reductions in outlays to states for defense-related planning (e.g., BRAC in Maryland), and lower outlays for federal-state share plans like the State Children's Health Insurance Program, and more. It also meant that, essentially, most agencies took a hit since inflation rose and funding did not.  

2) No strings attached to yet more war funding. According to the CBO, we've spent $640,000,000,000 on the wars in Iraq and Afghanistan. If we reduce troops to 30,000 by 2010, we're looking at an additional $570,000,000,000. If not, we're looking at another $1,055,000,000,000 dollars by 2017. Neither of these figures include the cost of the administration’s initiative to increase the size of the Army and Marine Corps, which CBO estimates will cost $162,000,000,000 over the 2008–2017 period.

I am appalled that the Democrats are going to eat their own - namely the 73 members of the Out of Iraq Caucus (of which Elijah Cummings and Albert Wynn are members). I anticipate being further appalled when some of the 73 go back on their word and vote for this monstrosity.

I am appalled that the Democrats are going to allow domestic programs to continue to bear the brunt of an ill-conceived war, one in which our administration destroyed evidence of torture that was under FOIA request by the ACLU in the Southern District of New York.

I am appalled that the Democrats are probably going to roll back good, progressive policy in the omnibus, like weaking or repealing the Mexico City Policy, to get the thing signed into law so they can go home to their districts by Christmas.

I am embarrassed for the party. I am embarrassed to call myself a Democrat.

Edited to add: As I guessed, language weakening or repealing the atrocious Mexico City policy will NOT be included in the omnibus bill. Apparently Nancy Pelosi believes that Congress' "first and foremost" responsibility is to negotiate a spending bill "that will be signed" by President Bush.  

Discuss :: (3 Comments)

Sweet, Sweet Cynicism

by: Isaac Smith

Mon Nov 26, 2007 at 01:20 PM EST

It's too clever by half, but Wryoak's take on Gov. O'Malley's strategy for the special session is, if nothing else, interesting. Concerning the increased progressivity to the income tax, he (she?) writes:

The tax a person owes to the county or municipality is tied to how much he owes to the state. In the new scheme, rural counties will see less revenue since they tend to have more people of modest means who will owe less in taxes. Affluent counties will get proportionately hit less, since they tend to have more residents who will pay the higher rates. (Higher rates to the state mean the county’s percentage gets bigger too.)

This arrangement is a clever grab for the hearts and minds - and votes - of Maryland’s red counties. O’Malley’s team is reaching past county governments where they largely have little influence. In a couple of years they will speak directly to the voters of, say, Western Maryland: Look, your taxes have gone down, here’s all this cool stuff we bought for the state, and isn’t it a shame that your Republican-run counties have been doing less for you. Vote Dem next time! (Will voters forget who strangled the county budgets in the first place? You bet!)


Amateurs talk tactics. Professionals talk logistics. By understanding the long term political impact of strangling their opponents’ strategic resources (cash), the O’Malley policy office shows they are consummate professionals indeed.

As I said, this analysis seems a little too neat, and borderline conspiracy theorizing. I don't doubt that the O'Malley team likes to play hardball, of course, but one hardly needs to imagine a local version of the K Street Project to see how O'Malley and the Democrats are likely, for better or worse, to keep their majority status in Maryland. (So long as the Maryland Republican Party keeps working from the Washington Generals playbook, at least.) Wryoak also discounts the idea that O'Malley might have been motivated to make the income tax more progressive out of a basic belief in fairness -- God forbid a politician sincerely believe in the policies he promotes! One can argue that O'Malley's presentation of his budget package was slick and tried to dance around the fact that it was mostly a dreaded tax increase, but it's odd that avowed State House insiders don't seem to recognize the actual policy implications of the budget debate. Or is it all just political jockeying to them?

Discuss :: (2 Comments)
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