Truth and taxes


WITH THE MEDICAL malpractice debate resolved, at least for now, by the General Assembly's veto override, it's time for a dose of reality. Over and over again, Gov. Robert L. Ehrlich Jr. attacked the bill as a "tax on working families." The Maryland Republican Party even ran newspaper ads in selected legislative districts showing a troubled young couple rubbing their foreheads while examining a document (presumably a working-family tax bill).

What's this new tax on working families that Mr. Ehrlich so hates? Incredibly, it's the 2 percent tax on HMO premiums. Let's examine the facts, shall we?

First, it's not a new tax but a rollback of a tax exemption. Other insurers, including managed care providers such as PPOs, pay the same tax. Is there some reason why HMOs should not? At least 28 states have an HMO tax, including those noted "tax hells" of Texas, Wyoming and Mississippi.

Mr. Ehrlich thinks HMOs will pass the tax on to consumers, but HMOs are beneficiaries of the malpractice bill, too. The more malpractice insurance rates are kept down, the less HMOs will be forced to reimburse physicians, whose own costs have been lowered. These same companies reaped $7 billion in profits in 2003. You think the business community (the folks who actually pay most of the premiums) is outraged? The Maryland Chamber of Commerce didn't oppose the malpractice bill, and the Greater Washington Board of Trade even endorsed it.

Still, let's assume the HMOs pass the entire cost on to consumers. How would working folks be affected? According to the state Department of Legislative Services, it would cost the families of state employees about 53 cents a week. Not bad to keep one's obstetrician in business.

But here's why Mr. Ehrlich should really hold his tongue. The tax will cost HMOs $65 million per year. That's about the same amount raised by the governor's surcharge on household sewer bills approved last year. It's a fraction of the $238 million a year in new transportation revenue (primarily from higher car registration fees) Mr. Ehrlich also championed. And there's more - like Mr. Ehrlich's 55 percent boost to the state property tax rate. Glass houses are sure inconvenient when it's time to throw stones.

No one likes taxing working families (or anybody else), but in all these cases, it was justified. A new legislative session began yesterday. Let's hope it features less Washington-style demagoguery and more honest conversation about state government - and taxes - over the next 89 days.

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