Martin O’Malley’s Terrible Fiscal Record

Chris Edwards Director of Tax Policy Studies, Cato Institute
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Former Maryland Governor Martin O’Malley is readying himself for a White House run. His recent rhetoric on economics shows that he will run to the left of Democratic frontrunner Hillary Clinton. After two terms of an unpopular left-wing president, that is surely the last thing the country needs.

The good news is that O’Malley has a record we can examine, so voters will have more to go on than promises of “hope and change.” For fiscal policy, Cato grades the governors from “A” to “F” every two years in its “report cards.” One thing stands out about O’Malley’s record: his Obama-like zeal for raising taxes.

In 2008 Cato awarded O’Malley an “F” after he signed into law a huge tax increase. In 2010 O’Malley recovered with “B,” as he trimmed spending during the recession and took a breather from tax increases. But in the 2012 and 2014 reports, the governor plunged to “D,” as spending growth resumed and he pushed more tax hikes.

Let’s take a closer look at spending. Over O’Malley’s tenure (fiscal years 2007 to 2015), Maryland general fund spending rose 13 percent, based on data from the National Association of State Budget Officers (NASBO). Across the nation, state general fund spending rose 15 percent over the period, so O’Malley performed a bit better than average.

However, the general fund is only a fraction of total state spending. According to NASBO, total Maryland spending jumped 33 percent from 2007 to 2014, which compared to the national increase of 25 percent. So by this measure, O’Malley was worse than average.

Now let’s look at tax changes, which are a more precise measure of a governor’s fiscal approach. While governors have only partial control over spending, they have full power to either sign or veto tax increases and cuts. Unless overridden by legislatures, governors are responsible for changes to income taxes, business taxes, sales taxes, and excise taxes.

This is where O’Malley reveals his Obama-style tendencies the most, as he raised just about every tax in Maryland. Governor O’Malley:

  • Raised the top personal income tax rate from 4.75 to 5.75 percent. With local taxes on top, Maryland’s top rate is 8.95 percent.
  • Raised the corporate tax rate from 7.0 to 8.25 percent.
  • Raised the sales tax rate from 5 to 6 percent and expanded the sales tax base.
  • Raised the sales tax rate on beer, wine, and spirits by 50 percent.
  • Raised the gas tax by 20 cents over four years, almost doubling the rate from 23.5 cents.
  • Doubled the cigarette tax from $1 to $2 per pack.
  • Imposed higher taxes on vehicle registration.
  • Imposed a stormwater mitigation fee on property owners, or a “rain tax.”

After eight years, O’Malley had hit income earners, businesses, consumers, smokers, beer drinkers, wine drinkers, and drivers, which probably means everyone in the state. He didn’t just punish the top 1 percent often targeted by Democrats — he gave a tax spanking to all 100 percent of Marylanders.

By 2014 Marylanders had finally had enough. In the gubernatorial election, Republican Larry Hogan pulled off a stunning upset over Democrat Anthony Brown. As the Washington Post said, Hogan’s win was powered by “relentlessly promising to roll back tax increases,” and it was a “repudiation of the eight-year tenure” of O’Malley. Hogan is focusing on rolling back some of the tax hikes, starting with the rain tax.

Hogan will have to deal with other fiscal legacies of O’Malley. Maryland has a large unfunded pension debt for its government workers. Standard and Poor’s found that Maryland’s pension funding ratio is just 64 percent, below the 50-state average of 71 percent, and much less than the full-funding ratio of 100 percent. That means that Marylanders could face more tax hikes down the road unless bloated state worker benefits are scaled back.

Another challenge for Hogan is Maryland’s lack of competitiveness. For individuals, Maryland has experienced a substantial out-migration to other states over the past decade. For businesses, Tax Foundation’s business tax climate study ranks Maryland near the bottom among the states. Maryland scores poorly for its high income taxes, which discourage small businesses, and it scores poorly on property taxes, which are a key factor in industry location decisions.

In sum, Martin O’Malley’s spending record was middling, and he did not fix the state’s serious pension or competitiveness problems. But the most striking aspect of his record is that he increased taxes so much that even this heavily Democratic state revolted at the ballot box.

Chris Edwards is editor of www.DownsizingGovernment.org at the Cato Institute.