Maryland’s tax and regulatory climate is ranked among the nation’s worst for businesses in a Tax Foundation report.
As the November 2014 election approaches, two candidates for the Democratic gubernatorial nomination are clashing over whether this state should reduce its corporate income tax rate to match that of neighboring Virginia.
The corporate income tax rate — the amount the government takes from business’ incomes and keeps as revenue — is 8.25 percent in this state, while Virginia’s is 6 percent.
State Del. Jolene Ivey (D-Prince George’s), a candidate for lieutenant governor on Attorney General Doug Gansler’s ticket, said the state should look into lowering the rate, at least to determine whether Virginia’s lower rate makes it a more attractive business destination.
“Our state is losing corporate tax dollars at kind of an alarming rate right now,” Ivey said. “It’s really discouraging.”
But Gansler’s chief opponent for governor, Lt. Gov. Anthony Brown, opposes cutting the rate, at least to the level Gansler has proposed. In a statement, Brown wrote that he favored a “comprehensive review” of this state’s tax code.
“What we cannot do, however, is enact a $1.6 billion corporate tax break that can only be paid for by slashing important investments we’ve made in education and transportation or raising taxes on working families and small businesses,” he wrote.
Across the aisle, three Republican gubernatorial candidates have expressed a preference for lowering tax rates that businesses pay: Harford County Executive David Craig, Del. Ron George (Anne Arundel) and businessman Charles Lollar.
Corporate tax rates often are a factor in firms’ choice of location between two states, said Michael Faulkender, an economist at this university. Dropping this state’s tax rate, he said, would make it more competitive.
“The question is: Is a
2 percent deduction going to change things on the margin?” Faulkender said.
Given the two states’ proximity to Washington, he said corporate taxation might have a larger impact on location decisions for firms that do significant contracting work with the federal government.
As firms decide whether to settle in states with higher or lower rates, Faulkender said their moving costs, size and previous location play into their choices, too.
“It depends on the size of the organization. Are they already diverse? Is it a small corporate office? Do they already own or are they leasing where they’re moving?” he said. “Those are all going to be taken into consideration when you’re determining the costs.”
State Sen. Victor Ramirez, (D-Prince George’s) a Gansler supporter, said this state has to toe the line between turning off businesses and cheating state taxpayers.
“I don’t think anyone should get a free ride,” Ramirez said. “But if there’s something we can look into that can make the state of Maryland more competitive, I think we have to do that.”
On a surface level, Faulkender said, it appears states with especially low corporate tax rates have fared well in attracting businesses.
“Texas is one of the better-performing states over the last decade, and at least anecdotal evidence seems to suggest that the more business-friendly tax and regulatory environment is one of the main considerations firms have had when relocating their headquarters to Texas,” he said.
This state’s tax and regulatory climate ranked the 10th worst in the country for business, according to a report released Oct. 9 by the Tax Foundation, a nonpartisan tax research organization. The report cited the state’s “complex, non-neutral taxes with comparatively high rates.” Virginia ranked 14 spots higher, at No. 26.
This state must strike a difficult balance on the issue, Ramirez said.
“There’s something to consider. We want corporations to pay their fair share — there’s no doubt about it,” he said. “But there comes a point, I think, we also want to make sure that we’re competitive regionally, that we’re competitive against states like Virginia.”
