O'Malley, Ehrlich focus on economy

Ehrlich wants tax cuts; O'Malley wants more investment

October 28, 2010|By Annie Linskey, The Baltimore Sun

The owner of a Western Maryland camp says strict new storm water rules are crippling his business. A winemaker complains that state loan guarantee programs aren't helping him secure credit to fund renovations to his vineyard. Another businessman can't understand why he has to pay such high costs for unemployment insurance.

"I hear this every day," Republican former Gov. Robert L. Ehrlich Jr. told the employers who gathered for the small-business round table he hosted recently in Hagerstown. "You start adding this up and you are talking about a lot of jobs. This is not heavy lifting, this is not hard stuff."

Ehrlich has conducted roughly 60 such sessions since April, an effort to highlight a pair of changes he says he would make if he wins his old job back from Democratic Gov. Martin O'Malley. He talks of ushering in a new regulatory attitude that is, as he puts it, more "partner" and less "sheriff," and rolling back taxes that he says scare off business executives and reduce Maryland to a "flyover state" for corporate headquarters.

O'Malley says he would continue policies aimed at moving Maryland toward an "innovation economy" or a "knowledge economy" that favors high-skill jobs.

"The economy is changing," he told The Baltimore Sun's editorial board recently, and state government must be "on its toes" to take advantage.

Both candidates are focusing on the issue that Maryland voters say is far and away their largest concern in this election season: the economy. Forty-four percent of respondents to a Sun poll this month say they believe it is getting worse, and more than half say the issue will affect how they vote.

Maryland employers have shed 82,600 jobs since O'Malley took office in 2007, and unemployment here doubled on his watch. Still, the state has fared better than most — due in part to its proximity to Washington and federal jobs — and unemployment here remains below the national average.

O'Malley says attracting high-skill jobs requires investments in education and transportation, spending that makes difficult the deep tax cuts that would be needed to boost Maryland's ranking in the surveys of business friendliness that Ehrlich uses to measure the state's progress.

"Economic development is not as simple as the tax rate," O'Malley said. He described himself as one of a group of leaders who "understand that education and economic development go together like eggs at breakfast."

Richard Clinch, an economist at the University of Baltimore, says both candidates are right, up to a point.

"We have a regulatory and tax environment that is less competitive than other states," he said. But curtailing government programs to fund tax reductions, he added, could be counterproductive.

"What are you going to cut? Part of the advantage is we spend all that money. Part of the disadvantage is we collect all that money. The question is do we have the proper balance?"

On the stump, Ehrlich says the General Assembly is populated with lawmakers who pass legislation that drives businesses away from the state. He refers often to a report by the Tax Foundation ranking Maryland 45th among the 50 states last year for business climate. The Washington-based nonpartisan group ranked the state 24th during Ehrlich's last year as governor.

The Tax Foundation bases its evaluation on five taxes it views as business-sensitive; Maryland rates poorly because of comparatively high personal income taxes, unemployment insurance taxes and property taxes. Ehrlich raised the last while governor.

It is unclear that Ehrlich's tax ideas would improve Maryland in this survey: The two taxes Ehrlich talks most about changing — the sales tax rate and the corporate income rate — are areas in which the state ranks better than most.

Still, the point wins nods of agreement from GOP-friendly audiences. Larry Epstein, a CPA who listened to an Ehrlich pitch on the economy at a Baltimore County golf club, wants lower taxes.

"Maryland really needs to catch up with surrounding states," he said. "Wealthy people are not the enemy. They are the backbone of the economy."

O'Malley points to a different set of studies when measuring the state's economic health.

"The indicators that I'm most concerned about are the indicators that say we are at the head of the pack when it comes to successfully making this change to a new economy," he said.

A study commissioned by the U.S. Chamber of Commence rates Maryland second for "entrepreneurship and innovation;" the Milken Institute, a California think tank, gave the state its second-highest rating in its 2008 technology and science index. That same year, the Kauffman Foundation ranked Maryland among the states best positioned for the "New Economy."

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