Ehrlich's tax dodge

AS PROMISED, Gov. Robert L. Ehrlich Jr. vetoed the medical malpractice bill passed by the General Assembly during the December special session. Democratic majorities in the legislature overrode his veto. What's shocking is that the governor opposes the legislature's attempt to resolve the issue with a dedicated fee because he favors solving the problem by paying for it with taxes.

Whoa. Didn't Mr. Ehrlich state very clearly that he opposed the legislature's solution because it would be paid for with taxes? Yes, he did. And isn't the 2 percent levy to be paid by the state's health maintenance organizations, as proposed by the legislature, a tax?


Not the way Mr. Ehrlich defines taxes, it isn't.

It's a "fee."


To deconstruct the political semantics of the Ehrlich administration, let's use the generic term "levy" to refer to any form of government-imposed revenue. During his first two years as governor, Mr. Ehrlich agreed to three new or increased levies -- on property, on car registrations and on sewage disposal -- that are expected to generate more than a third of $1 billion in state receipts.

But the governor and his deputies claim the latter two levies are "fees," not taxes, because the revenues are dedicated to specific public policy goals. If the public objective is connected in some way to the behavior, service or asset upon which the fee is placed, well, even better. Hence, because the car registration tax is dedicated to transportation projects and the "flush tax" is dedicated to Chesapeake Bay conservation, the governor refuses to call them fees.

The fee-or-tax distinction, however, is both a semantic and fiscal dodge.

For years, conservative critics have lambasted Democrats for disingenuously calling taxes "fees," when both are forms of taxation, regardless of the label. Curiously, conservatives seem to have forgotten this argument, and most state residents are not so easily fooled.

According to a Gonzales Research & Marketing Strategies poll taken in February, 68 percent of Marylanders view the automobile registration levy as a "tax." Pollster Patrick Gonzales told me that he suspects the results would be similar had the same question been asked about the flush "fee."

From a budgetary standpoint, the notion that fees are not taxes is equally absurd. Because state monies are, to a certain degree, fungible, whenever policy objectives are financed by "fees," the fee-generated receipts merely offset what otherwise would need to be raised through "taxes," or saved through spending cuts. The form and rate of a tax, and the people required to pay it, may change, but any impost on the state's citizenry is a tax -- period.

But, to be fair, let's apply the governor's distinction between fees and taxes to the medical malpractice controversy.

The legislature's bill wouldn't add a new levy but merely eliminate a 2 percent exemption that currently only HMOs enjoy. The Washington Times explained Tuesday that the receipts would "generate about $64 million in revenue over three years to subsidize doctors' malpractice insurance premiums." In other words, the revenues are dedicated specifically to solving the problem of skyrocketing medical malpractice insurance rates.


Mr. Ehrlich further objected to the HMO "tax" because the HMOs will merely pass along the added costs to insured patients. Fair enough. But that only means that the very patients in desperate need of services from physicians who might otherwise fold their practices or abandon the state will pick up the tab for the reforms.

By Mr. Ehrlich's own definition, the HMO levy cannot be the "harmful tax" he called it Monday, after his veto. Thus it must be a "fee." Meanwhile, the governor proposes that the medical malpractice solution be financed by tapping into the state's general fund. That's a puzzling choice, given that more than 80 percent of general fund revenues come from income taxes and sales taxes -- neither of which meet even the most liberal interpretation, so to speak, of what Mr. Ehrlich might call a "fee."

Thus the 2005 legislative session began Wednesday with the governor refusing to sign a hard-fought compromise medical malpractice bill that, though imperfect, would go a long way to solving a serious statewide problem. And one of the major justifications for his opposition is that the legislature's solution would impose what, by his own definition, is a fee to solve a problem he would rather solve by spending state taxes.

Apparently, the old maxim about ducks no longer applies to how conservatives raise government revenues. If it walks like a "tax" and quacks like a "tax," it somehow must be a "fee." The governor will have to pardon me -- and, apparently, 68 percent of Marylanders -- if we find his shifting political definition of what constitutes a fee, well, a bit taxing.

Thomas F. Schaller is associate professor of political science at the University of Maryland, Baltimore County.