Earlier this month, the Cato Institute published the 2016 edition of “Freedom in the 50 States,” coauthored by William Ruger and Jason Sorens. This study ranks each state with regard to its overall “freedom” by measuring the restrictions the state has placed on both personal and economic choices. For the purposes of this blog, I will use the authors’ analysis to discuss Maryland’s rankings among a number of economic freedom categories.
I note at the outset that since taking office in January 2015 Governor Larry Hogan has taken some actions, and proposed others not adopted by the Maryland General Assembly, which have and would improve Maryland’s ranking. But there is still much more work to be done.
Overall, Maryland is in the bottom five states in the “freedom” index, ranking 46th in the country. Maryland also happens to rank 46th in terms of “economic freedom.” This low ranking is attributable to the state’s combination of high taxes rates, unnecessary regulations, and burdensome occupational and business licenses that create barriers regarding how Maryland’s citizens can earn and spend money. Maryland’s regulatory and fiscal policies are the biggest reason for why its overall ranking is so low.
Free State Foundation President Randolph May and I have criticized Maryland’s regulatory policies and discussed areas where the state could improve in a January 2016 Perspectives from FSF Scholars entitled “Achieving Efficient Government and Regulatory Reform in Maryland.” In the “Freedom in the 50 States” study, regulatory freedom measures a number of different specific categories, including land-use requirements, labor market restrictions, and occupational licensing. Maryland ranks 49th in regulatory freedom. Here are some more specific findings relating to Maryland’s poor showing:
- Land-use freedom measures restrictions on rent control, how much a state uses eminent domain, and the number of permits and zoning regulations that burden property owners. Maryland has very restrictive land-use regulations, ranking it 48th in terms of land-use freedom. The authors state that if Maryland were to eliminate rent control, by itself, the state would move from 49th to 45th in terms of regulatory freedom.
- Labor market freedom considers a state’s right-to-work laws, minimum wage laws, disability insurance requirements, and worker’s compensation regulations. Maryland ranks 37th in labor market freedom.
- Maryland ranks 49th with regard to occupational freedom. As I discussed in a July 2015 blog, Maryland has overly restrictive occupational licensing requirements. These regulatory requirements burden entrepreneurial activity and create barriers for upward mobility, especially for low-income citizens.
“Fiscal freedom” is another important component of economic freedom. Maryland ranks 34th in the fiscal freedom index, which measures the tax burden placed on state residents, the amount of state spending, the amount of state debt, and the percentage of employment in the public sector. The authors say Maryland’s overall tax burden is average among the states, which is a more positive assessment than the most recent report from the Tax Foundation. However, the authors do say that state-level taxes have risen steadily over the last six years. One of Maryland’s most problematic components of its fiscal freedom ranking is its excessive business subsidies. The authors state that if Maryland were to end all business subsidies and cut taxes equivalently, its fiscal freedom ranking would rise from 34th to 24th.
For years, FSF scholars often have discussed Maryland’s burdensome tax and regulatory policies and the impact those policies may have on businesses and residents considering leaving the state. The state and local economy is one of the main reasons individuals migrate among states. According the study, Maryland had a net migration rate (NMR) of -2.4% in 2014. All of Maryland’s neighboring states not only rank higher overall, but also have a more favorable NMR. Delaware ranks 31st with an NMR of 7.6%, Pennsylvania ranks 26th with an NMR of -1%, Virginia ranks 21st with an NMR of 2.4%, and West Virginia ranks 39th with an NMR of 0.9%. While high tax rates and unnecessary regulations may not be the only reason why Maryland experienced a net population loss, reducing tax rates and eliminating burdensome regulations could incentivize individuals and businesses to remain in the state.Governor Larry Hogan has done a commendable job since taking office in January 2015 to take actions that move Maryland in a favorable direction. He has worked to lower licensing fees, transportation tolls, and tax rates. Governor Hogan also established a Regulatory Reform Committee with the mission of eliminating unnecessary regulations and streamlining administrative processes. But, as Maryland’s poor showing in Cato’s “Freedom” index indicates, there is much more work to be done, and the Maryland legislature needs to act in way that is consistent with improving the state’s “freedom” ranking.