O’Malley Floats Sales Tax "Trial Balloon"

Gov. Martin O'Malley did something this week you don't often see in politics today. He offered an idea for consideration, apparently without discussing it first with key advisers, checking in with party insiders, consulting his pollster, or doing a focus group.

He said that if he had his "druthers" he might look at a sales tax increase to provide new funding for transportation and help close the state's general fund budget gap. While opponents were quick to blast away, I can think of a number of reasons why the governor was right to raise the issue.

First of all, it is not necessarily bad that a politician occasionally has a new thought and dares to utter it in public before all the usual vetting. Maybe a few more off-the-cuff ideas would work better than yet another rehash of the same-old-same-old we've seen too often in Annapolis. That same-old-same-old isn't really working too well these days. So, for that reason alone, let me be the first to say: Bravo, Governor.

Secondly, raising the sales tax may or may not be the right thing to do now, but it certainly is worth putting on the table because it's a lot better than some of the alternatives.

Let's think about how the legislature might actually fix both the massive hole in the Transportation Trust Fund (after two decades utter neglect during which the gas tax lost more than half its value to inflation with no effort to replenish it) — and fill the long-term structural gap between revenues and expenditures in the state's General Fund. 

First and foremost, the state can cut spending in some areas, and that may be the best place to start to with the General Fund. But there is at least one big reason why this can never be the whole answer. On the transportation side, all we have done is cut, and cut, and cut, and then cut some more.  Right now there is nothing left to cut in what we used to call a "transportation program" in Maryland. Any further cuts here would carry a devastating economic cost that far outweighs any savings.  So we need to look at some new revenue sources this year no matter what, for this reason alone. 

The question then becomes, which new revenues should be on the table? Clearly the gas tax should be, but that just addresses the transportation funding issue, not the General Fund. On the General Fund side of the ledger, legislators are very unlikely to look at spending cuts alone to reduce our long-term deficit.  Political reality is likely to assert itself in the form of some new tax increases along with further cuts, to essentially split the difference.

Among the options we are likely to face this year, in the real world we live in, a sales tax increase is practically the least of our worries, and would do far less harm to our economy than many other ideas legislators have been casually tossing around. Far worse would be that old Maryland standby:  Increase business taxes. That is the worst thing we can do right now, given the fragile state of our economy, and would only move more jobs and future tax revenues out of our state, making our long-term deficits that much more daunting. That one really should be off the table, but it never seems to be.

Bottom line, it’s always easy to criticize a tax increase.  It's also easy to play "kick the can down the road" for yet another year, instead of actually solving anything. So go ahead and fire away at the governor's sales tax idea. Just one thing … Gotta better idea?