At a time when many governors stubbornly rejected new revenues despite their states’ weak fiscal positions, former Maryland Gov. Martin O’Malley’s was one of only a few governors who championed tax increases to preserve his state’s public investments even during the Great Recession.
Early in his term, O’Malley made a substantial revenue increase the centerpiece of his economic agenda. The most notable piece of this package was a progressive measure, the “millionaires tax,” which temporarily created a slightly higher new tax bracket applicable solely to taxpayers with taxable income in excess of $1 million. This change raised millions in much-needed revenue from the very wealthiest Marylanders—a group that could clearly afford to pay more since, at that time (PDF), the top 1 percent of taxpayers in Maryland paid just 6.2 percent of their income in state and local taxes compared to an effective tax rate of almost 10 percent for the bottom 20 percent of earners.
Unfortunately, the millionaire’s tax faced substantial opposition from anti-tax conservatives who claimed that the tax was driving wealthy individuals to leave the state. In reality, these claims turned out to be entirely fallacious and were driven in large part by the Wall Street Journal’s reckless misreading of data.
Additionally, the package contained other regressive revenue raisers, which were more of a mixed bag. For example, O’Malley approved increases to the regressive sales tax and cigarette tax. He also attempted to substantially expand the sale tax base through taxing services, a smart move in terms of policy, but one that turned out to be to politically toxic.
Each of these tax increases disproportionately affected low- and middle-income taxpayers. However, these increases were part of a broadly progressive package and were critical in maintaining public services that benefit all families in the state.
Five years later, O’Malley moved to increase the sustainability and progressivity of the tax code by raising income tax rates and limiting tax exemptions for Marylanders earning more than $100,000. According to an analysis by the Institute on Taxation and Economic Policy (ITEP), these changes only affected 11 percent of Maryland taxpayers and a majority of it was borne by the wealthiest 1 percent of taxpayers in the state.
In terms of enhancing the sustainability of Maryland’s tax system, one of the best moves made by O’Malley was his push to reform Maryland’s gasoline tax, which is the state’s main funding source for transportation projects. Like most states throughout the country, Maryland had allowed inflation to gradually chip away at the value of the gas tax. If lawmakers failed to act, the tax was on its way to its lowest level (adjusted for inflation) in 91 years. Fortunately, O’Malley was able to usher through a reform that both raised the gas tax rate in the short term, and allows for further adjustments in the future to keep the rate in line with inflation and gas prices.
One of the more noteworthy ways that O’Malley improved his state’s tax system was with expansions of the state’s Earned Income Tax Credit (EITC) in both 2007 and 2014. According to an ITEP analysis, the state’s expanded EITC made the state’s tax system significantly less regressive for low- and middle-income families.
O’Malley has yet to articulate a detailed vision on federal tax policy, but he recently laid out some broader progressive principles. In a recent speech at Harvard, O’Malley lambasted the failure of “supply-side economics” and called for an end to “tax policies that not only underinvest in our nation, but grossly and disproportionately benefit corporations and the ultra-wealthy.”
In addition, he has recently argued in favor of raising the capital gains tax rate, which would make the tax system significantly more fair considering that capital gains receive a preferential rate compared to wages and primarily are received by wealthier Americans. This move could potentially position him to the left of Hillary Clinton, who has been mum on raising the capital gains tax rate so far this election and has expressed skepticism of increasing the rate in the past.