January 30, 2012

O’Malley proposal to assess 6% sales tax on gas draws mixed reactions

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By Megan Poinski
Megan@MarylandReporter.com

Gov. Martin OMalley at WTOP in Washington.

Gov. Martin O'Malley at WTOP in Washington.

Gov. Martin O’Malley’s proposal to extend the 6% sales tax to gas as a way to raise funds for transportation infrastructure is being cheered, booed and pondered by advocates and legislators.

The proposal, announced during an interview on WTOP’s “Ask the Governor” program, had been awaited for months. In November, a government commission tasked with funding transportation passed its recommendations on to O’Malley and the General Assembly. It called for a 15-cent per gallon increase in the gas tax and prohibiting transportation money from being siphoned to other needs.

On Monday’s radio show, O’Malley went a different direction, saying that the best way to add a new tax on gasoline would be to slowly start collecting sales tax on it. Currently, gasoline is taxed at 23.5 cents a gallon, and is exempted from the state’s 6% sales tax.

O’Malley said that a “hybrid tax” – with both the flat per-gallon gas tax and the 6% sales tax – would prove a “better path forward.” Under the governor’s proposal, which has not yet been detailed in writing, the new sales tax would be phased in over three years. Each year, sales tax would increase 2%. Using current figures, the administration has worked out that this would increase the price of gas by about 18 cents a gallon. AAA has estimated it would be a 20-cent increase.

Commission chair surprised

Attorney Gus Bauman, the chairman of the Blue Ribbon Commission on Maryland Transportation Funding, said he was surprised by the governor’s announcement.

The commission spent two years studying different options to raise more money to repair and maintain the state’s infrastructure, and put together a wealth of options to get that money. While a sales tax on gas was one of the ones listed, it was not included in the commission’s recommendations to O’Malley and the General Assembly.

“In the end, we decided to go with the taxes and fees that people are used to paying rather than embark on a new tax that people are not used to paying,” Bauman said.

Business groups react

According to the commission’s report, adding a 6% sales tax onto gasoline sales would net an extra $613 million a year. The 15-cent gas tax increase would increase revenues by $458 a year.

Commission member and Greater Baltimore Committee President Donald Fry said that he is pleased that O’Malley is making transportation funding an important part of his legislative agenda for the current session.

While the sales tax isn’t exactly what the commission had recommended, Fry thought that maybe O’Malley was searching for a “middle ground.” Polls showed the public opposed to the gasoline tax hike. Sales tax is another way to solve the problem.

“This is not a novel approach,” Fry said.

In an e-mail, Maryland Chamber of Commerce President Kathleen Snyder said: “We applaud the governor’s leadership as Maryland needs to invest in our transportation infrastructure. We need to review the details of a bill before taking a position. We have supported an increase in the state gas tax for eight years, [but] have not looked at the sales tax.”

AAA spokesman John Townsend spent Monday afternoon figuring the numbers, and proclaimed that O’Malley’s plan “doesn’t stand a snowball’s chance in East Hades” of meeting the public’s approval. Marylanders already spend about $3,000 a year on gasoline, and adding 20 cents to each gallon of gasoline would give the state a dubious distinction.

“Maryland would go from the middle of the pack to having the fourth highest gas prices in the nation,” Townsend said. Right now, it ranks 30th.

Maryland Motor Truck Association President Louis Campion had been following the issue closely and had heard that O’Malley might have been thinking about a sales tax on gas. However, that was just something Campion heard might be a possibility; he had no reason to expect what O’Malley talked about on the radio Monday morning.

Campion said he hadn’t been hearing much from his members on Monday, but it was too early for him to weigh in on O’Malley’s idea. He said he could not comment on the proposal until he sees it in writing and has a chance to see exactly what it entails.

Bauman agreed that the way the governor announced his sales tax proposal left a lot of questions unanswered, meaning it was difficult on Monday to weigh in on it.

Lockbox needed for money

For Bauman, the way that O’Malley proposed to collect the taxes wasn’t nearly as important as assuring that the money would be used appropriately.

The top recommendation of the Blue Ribbon Commission was to create a legal prohibition requiring that money directed to the Transportation Trust Fund be spent on transportation. In past years, when the General Fund budget has run low, the Transportation Trust Fund has been used as a supplemental revenue source.

Bauman reiterated the commission’s top finding: If the people believe that higher taxes and fees will actually be spent on transportation needs, they are much more likely to support them.

“Without that protection, I would be somewhat surprised if there’s much public acceptance,” Bauman said.

O’Malley spent most of this time on the radio talking about the methodology of the tax increase. But at the end of the segment where he talked about the gas tax, listeners asked whether O’Malley would be willing to have a legislative guarantee that the money raised would go toward transportation.

“Yes,” he responded plainly.

Fry said that adding a lockbox to protect the money would be ideal. On Monday, however, the Greater Baltimore Committee was mostly enthusiastic that one of their top legislative priorities from the last six years – more transportation funding – is getting realized.

Kim Burns, president of the more conservative Maryland Business for Responsive Government, said that without a lockbox, “this tax is designed to keep taking from the wallets of hard-working Maryland families and small businesses with no accountability.”

“This tax proposal increases the cost of doing business here and fuels our reputation as a business-unfriendly state,” Burns said.

Legislators react

Any tax changes would have to go through the General Assembly. Several legislators applauded the proposal, saying that the state’s transportation needs have gone unmet for too long.

“We clearly have an unmet need for transportation infrastructure,” said Del. Sandy Rosenberg, D-Baltimore City, vice-chairman of the House Ways and Means Committee, which would handle the legislation. “It’s important to me that there be a serious emphasis on mass transit.”

Rosenberg added that much like the sales tax increase in 2007, some of the money from the transportation fund would help working families, “who can least afford this kind of tax.” However, he was concerned how high the state’s tax rate would be if the proposal is implemented.

Fellow Ways and Means Democrat Del. Aruna Miller, Montgomery, also said she would support the tax. Transportation is the state’s economic backbone, and better transportation will improve the economy, property values, and quality of life for Marylanders.

Republican committee member Del. Ron George, Anne Arundel, also foresees the bill passing Ways and Means.

“There’s no Democrat on that committee that doesn’t like taxes,” he said.

House Speaker Michael Busch said he hadn’t seen the proposal and wouldn’t comment.

–Daniel Menefee contributed to this report.

  • Anonymous

    O’Malley continues to demonstrate his lack of concern for the people of MD with this latest tax hike proposal. While the media keeps focusing on the roads & infrastructure, a huge drain is the gov’s need to get MD funds to match fed funds for the Red & Purple lines & continue to subsidize mass transit in certain areas of the state. Make no mistake, this regressive tax will ultimately affect EVERY person living in or passing through our wonderful state. The Dems controlling this state will never learn. Levy higher taxes & you ultimately get less revenue especially when several border staes are much more tax friendly. 

  • Frank Van

    Only one question needs to be answered on this subject:  “What happened to the $800 million plus dollars that should have been in the Transportation Trust Fund???”  If you believed the politicians then, and you believe the politicians now, you deserve to be fleeced.
    This is the power of a monopolist, in this case the democrats. It could easily be the other side, but controlling the election districts and manipulating them to your own exclusive benefit with no relation to the population, creates such an environment.

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  • party

    WHO CARES, THE STATE OF MARYLAND VOTED THE TAX RATS IN AND NOW WE DESERVE IT.  IF YOUR POOR ALREADY IT DOESNT MATTER.  IF YOUR PART OF THE ONE PERCENT DEMOCRATES ELITE ,YOU CAN AFFORD IT.   IF YOUR PART OF MIDDLE CLASS YOU WILL SOON BE PART OF THE POOR CLASS.   AND MOM WILL MOVE ON TO A BIG PAY OFF JOB SOME WHERE…

    KEEP ON ELECTING A ONE PARTY IN POWER AND YOU DESERVE IT..

  • For all of those who re-elected O’ Malley, Miller, Busch, and the other Democrats… What did you expect ? Just imagine what “wonderful” things that will be offered to us !

    As for the “lockbox”… ( Ha,ha,ha,guffaw,guffaw,sniggle,snort ).

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  • Nic

    let’s see … gas tax for me = buying my gas out of state…probably for many others as well … what does that do to the potential revenue increase if folks just stop buying in MD?

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