On
November 17, 2015, the nonpartisan Tax Foundation released its 2016 State Business Tax Climate Index co-authored
by Jared Walczak, Scott Drenkard, and Joseph Henchman. Unfortunately, in this
annual ranking, Maryland has not improved since the 2015 index was released. Indeed,
it actually fell one place to No. 41. This slippage drops the state into the Tax
Foundation’s “10 Worst Business Tax Climates” grouping.
As
I have written several times earlier this year, Maryland Governor Larry Hogan,
since taking office, has taken some concrete steps to improve the state’s
business climate reputation – and, thus, Maryland’s competitive position among
the states. But the governor needs more cooperation from Maryland’s General
Assembly to effect the changes that would improve Maryland’s overall business climate,
including its tax climate.
In
developing its state rankings, the Tax Foundation examines the following five
factors (with Maryland’s rank indicated): Corporate Tax (19); Individual Income
Tax (45); Sales Tax (8); Unemployment Insurance Tax (28); and Property Tax (42).
Sadly, Maryland’s rank did not improve in any
category from 2015 to 2016. As stated, its overall ranking fell from 40 to 41.
I
do not claim that rankings such as this are perfect. I do not even claim that
this particular study necessarily tells the complete story about Maryland’s
“business tax climate.” But the Tax Foundation’s study surely is useful as an
indication that changes are needed if Maryland is to improve its business tax
climate. As the study states: “While there are many ways to show how much
is collected in taxes by state governments, the Index is designed to
show how well states structure their tax systems, and provides a roadmap
for improvement.” And with respect to the ten worst states in the ranking, the
Tax Foundation says this of special relevance: “The states in the bottom 10
tend to have a number of afflictions in common: complex, non-neutral taxes with
comparatively high rates.”
Of
course, the rankings are not just for sport; they reflect real-world factors
that influence businesses decisions that, in turn, impact jobs, investment, and
a state’s overall economic prosperity. As the Tax Foundation recalled in this
year’s study: “In 2010, Northrup Grumman chose to move its headquarters to
Virginia over Maryland, citing the better business tax climate.” And as you can
see from the map below, none of Maryland’s neighboring states rank in the “10
Worst Business Tax Climates.” Delaware, West Virginia, and Virginia, for
example, rank significantly higher.
Aside
from the Tax Foundation’s just-released business tax climate index ranking
discussed here, Maryland recently has been ranked 37th
in overall fiscal health; 39th
in small business climate; and 45th
in individual income tax structure in various studies.
Again, it is not necessary to claim infallibility for each of the various
studies from which the rankings were derived in order to maintain that there is
much room for improvement with respect to Maryland’s business climate and its
overall fiscal health.
In the past several months, with the research assistance of my Free State
Foundation colleague Michael Horney, I have published a series of blogs
addressing various aspects of Maryland’s regulatory and business climate and
its budgetary and fiscal situation. For convenience sake, here they are:
Maryland Needs to Improve Its Fiscal
Health – July 9, 2015
Maryland
Needs to Improve Its Regulatory Climate – July 13, 2015
Maryland's Small Business Regulatory Climate
Ranks Poorly – July 22,
2015
Maryland
Needs to Improve Its Regulatory Climate - Part II – August 23,
2015
Of course, Maryland’s national ranking in other
important measures, such as education and household income, are higher. And its
current unemployment ranking at 5.1% is right in the middle. So, the overall
picture is by no means bleak.
But Governor Hogan is right to focus on improving
Maryland’s business climate and its overall fiscal health. His actions this
year to eliminate or reduce over 100 fees across state government, amounting to
an estimated savings of approximately $51 million over five years, and to
establish a commission to recommend elimination of unnecessary regulations are
tangible steps in the right direction. Governor Hogan should continue on this
course, and the legislature should support the change in direction towards a
lower tax, more restrained spending, less regulatory environment that Maryland
needs.