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Study shows Md. at disadvantage in business climate

Originally published in the Carroll County Times

By Bryan Schutt, Times Staff Writer
Published on Thursday, October 16, 2008
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The day the state announced $300 million in budget cuts, the Tax Foundation publically announced having rated Maryland as one of the five worst states in business climate.

The Tax Foundation, a national nonpartisan nonprofit based in Washington D.C. that's been monitoring tax policy since 1937, rates tax policy by simplicity, transparency, stability, neutrality and growth-promotion, according to its Web site.

Maryland's been in the middle of the pack as far as business climate rankings go for the past several years, but plummeted in ranking from 24th in fiscal year 2008, to 45th this fiscal year. Foundation spokesman Matt Moon said the business climate ranking takes a broad look at tax codes state by state for business operators. It not only examines how many tax mandates there are, but also at how they're instituted and how many groups are excluded.

"The key [dropping point] was Maryland is the only state to have a broad measure to increase taxes this fiscal year," Moon said. "It's directly attributed to the tax increases Gov. [Martin] O'Malley and the state's legislature passed."

Earlier this year, Maryland's sales tax increased from 5 to 6 percent, the corporate income tax increased 1.25 percent, the cigarette excise tax increased by $1 per pack and income tax brackets were rearranged. The moves came out of a special legislative session at the end of 2007.

Spokesman for the Governor's Office Shaun Adamec said businesses come to Maryland for a number of reasons, not just tax policy. Businesses are still attracted to the state because of its location and because it has a culture of innovation, which the study doesn't account for, he said.

Adamec said the study is flawed because it penalizes the state for local corporate taxes that are implemented jurisdictionally. Adamec said another flaw with the survey is it uses the 6.25 percent income tax bracket, which the vast majority of people don't pay, to penalize Maryland's business climate.

The 6.25 percent income tax bracket is for an income more than $1 million, according to the Tax Foundation.

Adamec also thought it was worth noting that although Maryland increased its corporate business tax, according to the survey it's still the 14th best corporate business tax rate in the country.

But others disagree. Christopher Summers, president of the Maryland Public Policy Institute, said being dropped in the business climate ranking reflects "the reckless policy being adopted and embraced by Annapolis."

The Maryland Public Policy Institute is a nonpartisan public policy research and education organization that focuses on state policy issues, according to its Web Site.

"Maryland will not tax its way into prosperity," Summers said. "The state needs to address spending. Maryland has a spending problem, not a revenue problem."

He said the ranking translates into the difficulty new business owners may be facing now.

"[The new tax policies] made it much more costly to do business in the state," Summers said. "How could raising the corporate tax by 1.25 percent make Maryland more competitive?"

He said when business owners have to pay more, they can afford less. That equates to firings, not hirings, Summers said.

But Adamec said Maryland's spending isn't out of control, and it has reigned in its inherited structural deficit and put the state in better shape headed into the future.

"With regard to the state of the economy, compared to how other states are fairing, Maryland is, relatively speaking, in a better position," Adamec said.

The author of this year's study was Tax Foundation economist Josh Borro. He said that Maryland's biggest problem is spending. To make the business climate better, he said Maryland needs to have more transparent taxes and it can't do any more tax increases.

He said the state could also broaden its sales tax to include things like nonprescription drugs, but reduce the rate to 4.6 percent and collect the same revenue. For now, though, Maryland may be in a bind.

"Nationally, businesses are having tough times," Borro said. "When [businesses] are looking to save money, Maryland is at a disadvantage to be a highly taxed state."

REACH STAFF WRITER BRYAN SCHUTT AT 410-857-7886 OR BRYAN.SCHUTT@CARROLLCOUNTYTIMES.COM.