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Advertise on the Tentacle

September 24, 2007

Striking the Deal

Richard B. Weldon Jr.

I really wanted to write about the Great Frederick Fair, but Patricia Kelly did such a great job on last Thursday's Tentacle, I wouldn't pretend to try.

My week of meeting and talking to Frederick area voters at the fair was overshadowed by the backroom maneuvering of the Democratic Party leadership over Gov. Martin O'Malley's plan to eliminate the structural deficit.

You remember the whole story. State government spends a lot more money than it takes in each year, and has for a really long time. Typically, the legislature and governor balance the budget by transferring funds, shifting money like a top-notch three card monte dealer in New York City.

Unfortunately, after last session's sleight-of-hand, the till was empty. The substantial surplus created under the Ehrlich Administration was used to balance last year's budget, so with another year of deficit spending at hand, another solution was necessary.

So Governor O'Malley sees a solution. He wants to increase the sales tax from 5% to 6%. He wants to expand the sales tax to cover certain professional services (but not legal services, since the lawyers are all very good lobbyists). He wants to change the income tax code, to move from a fairly flat tax rate to a graduated rate that raises the tax rate on wealthy Marylanders. Finally, he wants to close "loopholes" in the corporate tax code to make companies doing business in Maryland pay taxes in Maryland.

Liberal and progressive writers (including some right here on The Tentacle) applaud the governor for his wisdom and insight. They hail his bravery at facing this deficit monster with bold new proposals. My favorite analysis is the one that says low and middle income Maryland residents will actually benefit from all of these new taxes.

A big part of rolling out a package of tax increases is trying to get you to see something that doesn't exist. Like the best Vegas illusionist, your attention will be diverted by a flash of light so you don't see the dove pulled out of the box.

Governor O'Malley says his plan will raise income taxes on the wealthy without defining who the wealthy are. We're thinking Joe Millionaire, but he may be thinking Joe Smith. The governor's idea is that he will extract a larger share of income tax revenue from higher income brackets while lowering the rate on poorer people. Sounds great in principle.

Where the gremlins pop up is in defining the income limits. One early rumor had the bar set around $150,000 per year. If you're a family with two income earners in Frederick, and you file a joint return, then you probably meet or exceed this threshold. As soon as the governor's handlers found out about this, they squelched the rumor by claiming the limits hadn't been set yet, so any talk about details was premature. Remember, they're telling you to watch the flashing light so you don't see the white dove.

Another diversion is the whole question of raising one tax while saving you money on another. I would suggest that if you're na´ve enough to actually believe that, you probably deserve everything that's about to happen to you.

The O'Malley plan will describe a scenario that for low and moderate income folks, the sales tax increase will be offset by the new income tax rate changes. In truth (often lacking in political debate), the income tax offsets will be minor, and won't even be immediately realized. Most people won't see an impact from a tax rate change until they file income taxes a year later. The sales tax increase, however, will be immediate.

Granted, a one cent increase in the state sales tax is a minor increase in spending for most of us. My concern isn't with most; it's with those whose income does not grow at a predictable rate. Seniors on fixed incomes and people who work minimum or lower wage jobs to make ends meet will definitely be impacted by a sales tax increase.

The whole question of slot machines must be dizzying to the casual observer. House Speaker Mike Busch didn't want them, and did everything he could to stop them during the Ehrlich Administration.

When Governor O'Malley and Senate President Mike Miller expressed their support of slots as a way to save horse racing in Maryland, Speaker Busch once again played the odd man out. He even made the blanket statement that a Special Session to deal with the budget deficit was unnecessary, that the regular General Assembly session was the proper place to fix the problem.

Now it seems as though the speaker may have had a change of heart. Talk of a Special Session by early November indicates that a deal is either in the works or already struck. What is it that could cause an almost miraculous conversion on the part of the leader of the House?

He's going to get what he wanted, that's what! Speaker Busch will be holding out for at least two major policy initiatives. He wants a major expansion of the state's Medicaid program, and he wants a major Chesapeake Bay clean-up initiative.

To satisfy that demand, and to get the required 71 votes from the House of Delegates for whatever program they need, Governor O'Malley cannot just focus on raising $1.5 billion in new revenue. To get the speaker onboard, they're going to need closer to $2.3 billion.

So I suspect the deal is already struck, and the only work left is to corral the necessary votes and to structure the message in such a way as to make sure we all watch the little flash of light. If we do, we'll never see the hand that snatches our wallet.

Yellow Cab
The Morning News Express with Bob Miller
The Covert Letter

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