The Tax Foundation recently released the latest edition of its annual Facts & Figures 2014: How Does Your State Compare? The report ranks state tax rates and burdens in order to provide an objective perspective on how individual states measure up to a national average.
Maryland’s business tax climate still needs improvement. As I discussed in a blog last October, the Tax Foundation’s State Business Tax Index measures how each state’s tax laws affect economic performance. The Index named Maryland among the ten worst states with respect to its business tax climate. Maryland remained ranked 41st in the more recently released Facts & Figures report.
Additionally, Maryland received a poor overall tax climate ranking from the Tax Foundation’s Annual State-Local Tax Burdens Rankings. That report was released April 2 and uses the most recent data available as of January 2014. For each state, the report computes tax burden by totaling the amount of state and local taxes paid by state residents to both their own and other governments and then divides these totals by each state’s total income.
In fiscal year (FY) 2011, Americans paid an average of 9.8% of their income in state and local taxes. Maryland ranked seventh highest in the U.S. for its state-local tax burden for FY 2011 (10.6%).
Maryland imposes a higher-than-average burden on its citizens and received a worse ranking than its local counterparts: Delaware ranked 15th (10.1%); West Virginia ranked 19th (9.7%); Virginia ranked 30th (9.2%). As a unique state-local entity, DC is not included in the rankings, but it would rank 20th (9.7%). For FY 2011, New Yorkers had the highest burden, paying 12.6% of their collective income in state and local taxes. New Jersey (12.3%) and Connecticut (11.9%) came in 2nd and 3rd, respectively. Wyoming (6.9%), Alaska (7.0%), and South Dakota (7.1%) had the lowest burdens.
States with high-earning residents tended to have the highest tax burdens. Maryland residents had the fourth highest average income in the U.S. in 2011 ($52,805). Maryland also had among the highest property tax burdens in America that year. Maryland ranked third highest in individual income tax collections per capita, trailing only New York and DC (and Maryland would rank second highest if DC is not considered). Maryland had the tenth highest individual income tax collections per capita as of FY 2012, which is a minor improvement from FY 2011.
While state and local tax burdens across the U.S. decreased on average in FY 2011, tax burdens increased in Maryland, Delaware, and DC. According to the rankings, “the driving force behind a state’s long-term rise or fall in the tax burden rankings is usually internal and most often a result of deliberate policy choices regarding tax and spending levels or changes in state income levels.”
As I urged in my last blog on state tax issues, it would be wise for Maryland to consider the success of other states, particularly its neighbors with lower tax burdens, and to implement changes to improve its local tax climate. In particular, if Maryland wishes to remain competitive with its neighboring states and prevent job losses, it should establish tax policies that attract and retain private sector businesses and decrease individual tax burdens.