California Governor Jerry Brown recently announced that his state’s projected budget deficit had nearly doubled over the span of a few months, going from $9 billion to $16 billion. While Brown maintains that the huge jump is due to an error in revenue forecasting, the real reason is obvious: California is spending too much and is too reliant on a shrinking tax base. Decades of liberal policies that accelerated spending and grew government employee entitlements have led to a loss of population and wealth.
According to the non-partisan Tax Foundation, California has the third-worst business tax climate in the country. The Golden State also has the highest individual income levy in the nation, the lowest credit rating and, according to a recent Stanford University study, a public employee pension system that’s a $290 billion unfunded liability. Unsurprisingly, the unemployment rate stands at a sky-high 11% and tax collections from wealthy Californians are down nearly one-third. The ninth-largest economy on earth is in serious danger of spending its way into bankruptcy.
One would think that other states would be desperately trying to avoid repeating California’s mistakes. Enter Maryland’s Democratic governor, Martin O’Malley. Just days after Brown’s embarrassing declaration, O’Malley signed into law one of the largest tax hikes in Maryland history, capping a special legislative session where he increased spending by half a billion dollars.
While Maryland’s problems are not as severe as California’s and the bloated federal workforce generally shields Maryland from high unemployment, Maryland risks becoming the next California. O’Malley and his Democratic supermajority in the legislature have certainly put the state on a similar, unsustainable path.
It wasn’t always this way for the Free State. O’Malley’s predecessor, Governor Bob Ehrlich (R-MD), was a fiscal conservative. Ehrlich consistently defeated the liberal legislature’s tax-hike proposals, reduced the overall size of government by 10% and even left a $1 billion surplus in 2007. However, the downward spiral began shortly after O’Malley’s swearing-in.
Like California, Maryland has one of the worst business tax climates in the country (42nd out of the 50 states). That explains why nearly 3,500 businesses have either left Maryland or closed up shop since 2006. Only one Fortune 100 company is headquartered in the state.
Like California, Maryland punishes success. The O’Malley administration has made raising taxes on the “rich” a high priority. In the most recent special session, O’Malley and his allies redefined “rich” to include individuals earning just $100,000 annually — nearly 14% of the state’s population.
Maryland’s politicians, like California’s, have put their state on an unsustainable spending path. Between 2009 and 2011, the stimulus package bumped up aid to states for programs like school construction and Medicaid. Other states cut spending after the stimulus funds dried up. Not Maryland: O’Malley and the legislature have continued spending at the astronomical stimulus levels. In just six years, O’Malley has increased spending by a whopping 19%.
Both California and Maryland are facing a ticking time bomb of state employee pensions. Maryland politicians, like their California counterparts, have over-promised for the last two decades and, because of pressure from public employee unions, have avoided serious pension reform. Unlike Wisconsin Governor Scott Walker, O’Malley has decided not to lead on this important issue. Recently, O’Malley signed a bill to push all teacher pension liabilities from the state to the counties — a plan that will lead to massive property tax hikes and could bankrupt the already cash-strapped counties.
O’Malley’s lack of leadership has put Maryland on a path to fiscal insolvency. He is repeating California’s mistakes by foisting out-of-control spending on a shrinking tax base. If it weren’t for the federal government employing tens of thousands of Marylanders, O’Malley would be out of a job and most certainly out of the 2016 presidential sweepstakes.
Each year, Maryland’s politicians make the state’s problems worse by forcing the most productive Marylanders to pay for the least productive ones. In today’s world of extreme social and career mobility, the federal government shield won’t last forever and those with means will seek asylum elsewhere. It’s happening in California. If Annapolis continues on its current fiscal path, it will happen in Maryland as well.
Dave Schwartz is Maryland State Director of Americans for Prosperity. He can be reached at dave@afpmaryland.com.
