Sunday, February 5, 2012

O'Malley's Tax Plans May Hurt Democrats in 2012

In a recent post I criticized Governor O'Malley's proposed tax increase on gas and the plan to double the flush tax as too regressive to be acceptable. Now, the good folks at the Washington Post have done the math and show just how unfair O'Malley's tax increases would be.

According to an analysis by the Post low and then middle income Marylanders will face the most significant increases in their tax burden should all of O'Malley's proposals be accepted. And which group would see the smallest increase in their tax burden? Families earning over $500,000 per year. In fact, the percentage increase in tax burden for a single person earning $34,000 per year would be double that of a family earning $500,000 per year. Of the nearly $1 billion in tax and fee increases proposed by the governor only $200 million - 20% - would come from limiting tax deductions from higher income Marylanders. The remaining 80% on the increases come from regressive excise taxes.

President Obama has repeatedly argued for tax increases only on folks earning at least $250,000 per year, arguing that Republican opposition stems from the Republican party's desire to protect the wealthy at the expense of every one else. Martin O'Malley is no mere bystander in this national debate. As Chair of the Democratic Governors Association he is a spokesperson and symbol for his party. O'Malley's incredibly regressive tax proposals undermine the Democratic party message and suggest a party unconcerned with the plight of working class families - and that's no small problem. No doubt, defenders of the Governor's proposal will be quick to point out that the increased out of pocket costs for a family earning $500,000 per year will be $1,347 while the increase for a single person earning $34,000 will be $112. But ask yourself - who will feel the loss of income more acutely?

Working class voters will be crucial to the Democrats' success or failure in the 2012 elections. Forget all of the talk about Barack Obama winning in 2008 because of a surge in turnout by young or minority voters - by people who never voted before. Exit polls from 2008 show the share of first time voters  in 2008 was exactly the same as in 2004. The real key to Obama's and the Democrats' victories in 2008 was the return of working class voters to the Democratic fold.  As shown in the figure below, Democrats have been experiencing a steady erosion of support among working class voters since the late 1950s.

Source: American National Election Studies

In 2008 there was a reversal of the trend and working class voters returned to the Democratic party. These voters abandoned the party in the 2010 midterms and delivered control of the House of Representatives to the Republicans. If Democrats cannot win them back in 2012 the party will lose the White House and the Senate and Republicans will once again have unified control of the Executive and Legislative branches.

Democrats cannot win back working class voters by imposing regressive and punitive taxes on them in the midst of a weak economic recovery. Governor O'Malley's proposals would increase the cost of driving to work and the cost of goods and services through higher gas taxes, they would decrease disposable income by raising the flush tax (especially in rural and poor parts of the state where septic systems are common) and increasing utility costs.

And while Democrats nationally claim to favor progressive taxation that would ensure the wealthiest pay "their fair share" Governor O'Malley's plan would impose a greater burden (as a percentage of income) on low income, working, and middle class voters in Maryland as compared to the wealthiest earners in the state.

O'Malley has said that he gave a great deal of thought to his proposed tax increases. If true, that may be the saddest commentary of all. Democrats cannot win without the working class, and working class families cannot emerge from the great recession under the burden of regressive taxes.