In the midst of America’s fiscal crisis, economist Anirban Basu told members of Maryland’s Chamber of Commerce that it is imperative for the state to lower corporate income tax to create better opportunity to attract capital investment to offset the impact of decreased federal spending.
Speaking at the chamber’s business policy conference in Ellicott City on Friday, Basu said the Free State is three times more vulnerable to the impact of federal reductions than any other state. The number of Americans that work for the federal government is 2.1 percent, while 5.2 percent of Marylanders get a federal paycheck. With extensive cuts scheduled for the Department of Defense and National Institutes of Health, both big players in Maryland’s economy, Basu said Maryland is in for a “world of hurt.”
“We need to change our economy and position ourselves to attract more private capital,” Basu said. “How do you do that? By having one of the worst business tax climates in the country? No. That is, actually as it turns out, not the way to do it.”
Basu cited the Tax Foundation’s 2013 State Business Tax Climate Index, which ranked Maryland as having the 10th worst business tax climate in the country, and said the state should be concerned with staying competitive with Virginia in attracting potential businesses. Although Virginia also relies heavily on federal jobs, it has historically lower unemployment rates than Maryland and has the sixth best corporate tax climate in the nation (Maryland ranks 15th). Virginia’s corporate income tax is 6 percent and hasn’t been raised in 40 years, while Maryland has an 8.25 percent rate.
“Maryland doesn’t outscore Virginia on any dimension,” Basu said. “Virginia is our primary competitor and we just do not compete.”
After Basu’s presentation, leaders from three Maryland companies, W.L. Gore & Associates, Old Line Bank and Merritt Properties LLC, said in a CEO panel that they also feel Maryland needs to develop tax policies that will help grow Maryland business.
Later, three lawmakers on a legislative panel agreed that lowering the corporate tax would be in the best interests of the state.
Del. Sheila Hixson, a Montgomery County Democrat and chair of the House Ways and Means Committee, said no decrease has been considered in any of the House’s tax plans.
“I would be happy to work with Ed [Sen. Edward Kasemeyer, chair of the Senate Budget and Taxation Committee] to see if we can get together with the House and Senate and certainly go forward with hearings and getting what kind of fiscal impact it has,” Hixson said. “Sometimes in the state legislature we get accused of not being business friendly, but there is a sense that we want everybody working together in this point in time to help you.”
Kasemeyer, a Howard County Democrat, proposed cutting one quarter of one percent per year until “the impact wouldn’t be so significant every year.”
“I think it would be for the better of Maryland if we could reduce it,” Kasemeyer said. “From a perception basis, the 8.25 percent rate makes us look out of line. We get around $750 million from the corporate income tax.”
Rob Garagiola, another Montgomery County Democrat and the Senate majority leader, said Maryland does rely too heavily on federal jobs but has taken action to diversify its economy in recent years.
“There are a number of things that we put in place — the research and development tax credit — to try to foster and grow other industries,” he said. “Biotech, high tech, even green tech. It’s one of the fastest growing sectors in our state. There were a lot of jobs created in that sector even during the recession.
“We got to react to what they do at the federal level,” Garagiola added.