What’s the fiercest rivalry in American politics today? There’s Obama-Romney, of course, but try O’Malley-McDonnell—neighboring governors battling across the Potomac River over how best to resuscitate a moribund economy.
Martin O’Malley, Maryland’s liberal Democratic governor, is competing for jobs, businesses and tax dollars with Bob McDonnell, Virginia’s conservative Republican chief executive. Both are rising stars considered potential presidential hopefuls in 2016. Both are Irish Catholics—Mr. McDonnell playfully calls Mr. O’Malley “the big Irishman to our north”—and each leads his party’s association of governors. The two regularly spar on the Sunday talk shows, on the pages of Washington-area newspapers, and over the radio.
Each man seems obsessed with proving that his economic model has outperformed the other’s. Mr. O’Malley, a former crime-fighting Baltimore mayor now in his second term in Annapolis, is an unapologetic tax-and-spender. He has adopted the rhetoric of the left that every government program is an “investment.”
Mr. O’Malley raised taxes on Maryland’s millionaires in 2007, but much of the revenue he hoped to generate never materialized—partly because there were fewer millionaires to tax. He’s since won increases in the state’s sales tax, tobacco tax, gas tax, and income tax for earners above $100,000 a year. When we spoke this week, he called raising taxes “a balanced approach” to reducing deficit spending, echoing President Obama.
On the national level, Mr. O’Malley insists that Mr. Obama’s policies have turned around the economy, and he’s furious at Democrats who distance themselves from the president’s record. Like the president, he regularly touts his state’s “political courage to invest” in public works, schools, transit and anything else Annapolis might sprinkle money on. During our conversation he rattled off his accomplishments: “We’re rated number one in public schools by Education Week, we’ve had the lowest increase in college tuitions in the region, and we still have the third-lowest taxes as a share of income in the country.”
Across the state line is Mr. McDonnell, stylistically the Southern gentleman. Mr. McDonnell was elected in 2009 and has cut taxes, reduced state expenditures, and installed business-friendly personnel into the regulatory agencies. He inherited a $6 billion budget shortfall and has turned it into a $1 billion reserve surplus. He’s one of Mr. Obama’s staunchest critics and wants to keep ObamaCare out of Virginia.
At first it seemed that the O’Malley strategy was winning. On CNN in February, the Maryland governor triumphantly declared: “We’re creating jobs at two-and-a-half times the rate Virginia is.” As with many O’Malley statistics, though, this wasn’t the whole truth: He was counting one year of data (2011).
An additional problem: Over the next six months (January through July of this year), Maryland has lost jobs while most of the nation has gained them. As Mr. McDonnell joked in a recent interview, “Sure, they beat us on job growth if you count just three months and every other Tuesday.”
From Mr. O’Malley’s inauguration through last month, Maryland lost 30,000 jobs, or three times as many as Virginia, according to the U.S. Department of Labor. And while Virginia is fiscally fit, Maryland constantly has to go back to its legislature seeking money to balance the budget and fund the governor’s “investments.”
Both states have unemployment rates below the national average—a benefit of living next to that non-stop cash-dispenser, the federal government. But Maryland’s unemployment rate is 7% while Virginia’s is 5.9%, the largest gap between the states in a decade.
A study released last month by a conservative group, Change Maryland, found a net loss of 30,000 taxpayers from the state “costing approximately $1.7 billion in lost tax revenues over the past five years.” It discovered from federal IRS data that Maryland’s highest levels of out-migration were from its wealthiest counties, suggesting that higher-income residents are voting with their feet to avoid Mr. O’Malley’s taxes. Virginia had a net in-migration of new taxpayers over the same period, according to the IRS.
Mr. McDonnell revels in telling me that Virginia beat out Maryland to win the new corporate headquarters of defense contractor Northrop Grumman. The McDonnell years have also seen Virginia steal away from Maryland major operations by companies such as Bechtel and Acentia. “We set out to show that if we pursued fiscal conservative policies and limited regulation, people will come,” Mr. McDonnell says. “Our record speaks for itself.”
It’s hazardous to draw too many conclusions from a few years of data, and many factors can cause some states to grow faster than others. Mr. O’Malley is banking that over the long term his tax-and-”invest” strategy will pay big dividends for the state. Maybe.
But what’s undeniable is that if these two states are supposed to be showcases for their party’s respective jobs strategies, Maryland’s record is anything but a ringing endorsement for progressive government.
Mr. O’Malley’s gamble—that high tax rates don’t hurt businesses and workers, that the way to rev an economy is to spend more on schools, rail and centrally planned economic development—is the same as Mr. Obama’s. And though Maryland is a long way from being the basket case of California or Illinois, its more than 20 fee and tax hikes haven’t kept it from constantly running out of money. To generate more cash, Annapolis recently approved gambling casinos.
The most devastating recent assessment of Maryland’s fiscal condition came last month from Peter Franchot, the state’s comptroller—and a Democrat. “The Maryland economy is in trouble. . . . Our current strategy—one that depends excessively on public sector jobs and government spending—is no longer working. To maintain our commitment to better public schools, safer communities, a cleaner Chesapeake Bay and other essential priorities, Maryland needs a fundamentally new approach to job growth, one that is focused squarely on the private sector.”
That sounds a lot like the Bob McDonnell approach in Virginia—and the one promoted nationwide by Mitt Romney and Paul Ryan.