Tuesday, January 15, 2008

The Governor Pays the Price for Miller's Advice

According to the Baltimore Sun, Governor O’Malley now suffers a 35% approval rating, the lowest since the end of the Glendening administration. Why? Two words: tax hikes. And another two words: Mike Miller.

Reacting to the state’s $1.7 billion general fund deficit, the Governor proposed a tax hike and spending cut plan prior to last fall’s special session. While, as David Lublin points out, no one enjoys either tax hikes or spending cuts, some parts of the plan were more unpopular than others. The features enjoying the most voter support were tobacco tax hikes (69% in a 9/28/07 Washington Post poll), slots (68%), corporate income tax hikes (66%) and income tax increases on the rich (62%). The feature with the least support was the sales tax hike (29%). The Governor tried to soften the tax hikes with a property tax cut.

But Senate President Mike Miller had other ideas. The Senate junked combined reporting, a corporate tax reform that would have made it more difficult for corporations to reduce Maryland taxable income by assigning it to other states. The Senate reduced the top rates in the Governor’s income tax proposal, thereby making it less progressive. And the Senate eliminated the Governor’s property tax cut. So three of the Governor’s most popular reforms were reduced or taken off the table. While the final package was a compromise with the House that restored some of the top income tax rate increases, the contribution of the Senate ensured that the outcome was less progressive than it otherwise could have been.

The result? The hugely unpopular sales tax increase accounted for more than $700 million of the final $1.3 billion tax package, the primary reason cited by the Maryland Budget and Tax Policy Institute in labeling it regressive. And Baltimore Sun poll respondents labeled the tax package “unfair” by a margin of 51-33%.

Now I was not a big fan of the Governor’s original proposal but in retrospect, it was far superior to the Senate's proposal. Unfortunately for the well-meaning but embattled Governor, the price of following Mr. Miller’s advice is the good will of the Maryland voter.

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