The Magazine

Maryland Rematch

Ehrlich-O’Malley II.

May 24, 2010, Vol. 15, No. 34 • By EMILY ESFAHANI SMITH
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Annapolis

Maryland Rematch

Bob Ehrlich

In 2006, Bob Ehrlich of Maryland was the only Republican governor to lose his seat to a Democrat. His defeat was no surprise. Maryland is a strongly Democratic state that before Ehrlich hadn’t elected a Republican governor since Spiro Agnew in 1966. Besides, there was a powerful Democratic trend nationally and in the state in 2006, and Ehrlich’s challenger was a popular Democratic mayor of Baltimore, Martin O’Malley. Ehrlich lost, 46 percent to 53 percent. Now, the former governor is challenging incumbent O’Malley, and with Ehrlich’s statewide name recognition, political skill, and popularity, it’s likely to be a close race.

In 2002, when Ehrlich, then a four-term congressman from suburban Baltimore, captured the open governorship, he faced a weak opponent, Kathleen Kennedy Townsend, and defeated her 52 percent to 48 percent. O’Malley is a far tougher opponent. The Real Clear Politics average of early polls shows O’Malley ahead by 6.7 percentage points.

Yet Ehrlich has his reasons for believing he has a real shot this year. One is that the political winds have shifted in his favor. Voters are dismayed by the “tax and spend” policies in Washington and Annapolis, and Ehrlich has positioned himself to take advantage of this mood. His record is fiscally conservative. 

Another reason is that Maryland faces “record unemployment, a record deficit, and record job losses,” he explains in his campaign office in Annapolis. Business confidence in the state is shattered. Ehrlich says business owners he meets on the campaign trail tell him, “If you don’t win, I’m gone.” Ehrlich is waging a pro-business, fiscally conservative campaign. Because of O’Malley’s policies over the last four years, he says, Maryland has joined the “junior varsity” of business-friendly states.

Consider: Thousands of jobs have fled in the last few years. A thousand businesses closed in 2008, and 3,000 more last year. One cause was the national recession. But O’Malley also passed the largest tax increase in Maryland history in 2007. He bumped the sales tax from 5 percent to 6 percent and raised the corporate income tax from 7 percent to 8.25 percent. The following year O’Malley increased the millionaire’s tax from 4.75 percent to 6.25 percent. In some parts of the state, rich Marylanders were paying nearly 10 percent of their incomes in county and state taxes—on top of federal taxes. 

According to the Tax Foundation, Marylanders carry the fourth highest tax burden in the nation, and the state ranks 45th in business tax climate. These taxes are “jobs killers,” says Ehrlich. Already, nearly one third of Maryland’s millionaires have fled, according to the “Rich States Poor States” study published by the free-market American Legislative Exchange Council, taking $100 million in tax revenue with them. 

The story of defense giant Northrop Grumman shows what it means to be in the JV of business-friendly states. Looking to relocate its headquarters from California to the Washington area, Northrop Grumman weighed the pros and cons of Virginia, the District of Columbia, and Maryland. In April, the company chose Virginia. The corporation will take over $30 million in tax revenue to the Old Dominion and hundreds of jobs. Ehrlich is making sure Maryland’s loss haunts O’Malley on the campaign trail. 

Ehrlich warns that even more tax increases may come to Maryland if O’Malley is reelected. “The worst-kept secret in Annapolis is that there are going to be monumental tax increases next year,” as much as $3 billion Ehrlich says. But O’Malley has accused Ehrlich of being a scaremonger. Ehrlich’s response? “I’m a truthmonger.” Facing a $2 billion deficit, Maryland’s House of Delegates is debating a measure to make permanent the millionaire’s tax, which was set to expire this year. 

Ehrlich has seen hard fiscal times before, including a $4 billion deficit when he was governor. “We inherited a difficult situation the first time I was elected, and we fixed it.” After cutting spending, slashing his cabinet’s budget by at least 20 percent, and consolidating his staff, he left office with a surplus of $1.2 billion and a rainy day fund of about $800 million. Over 7,000 new businesses started in that period, and 100,000 jobs were created. If elected, Ehrlich says he would pursue a course similar to that in 2002.  

But first he needs to win the election. Ehrlich knows that this requires Democratic votes, and he’s confident he can get them. His congressional and gubernatorial wins were a result of successfully appealing to Maryland’s blue-collar Democrats and independent voters. 

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