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State losing more small businesses than its neighbors

Maryland lost 4.71 percent, or 6,494, of its small businesses from 2007 to 2010, a decrease that one fiscal policy group chalks up to the state’s tax increases. But some economic experts say that is only part of the answer.

Maryland fared about the same as Delaware, but lost a higher percentage of business than its other neighbors, according to U.S. Census figures for businesses with 1 to 99 employees.

Delaware lost 4.72 percent, or 1,176 businesses; West Virginia lost 4.51 percent, or 1,789 businesses; Virginia lost 3.66 percent, or 7,170 businesses; and Pennsylvania lost 2.64 percent, or 7,854 businesses. Washington, D.C. gained 523 businesses, or 2.59 percent.

Nationwide, there was a 3.89 percent decrease in small businesses.

“The overwhelming evidence shows that Maryland is bleeding businesses, jobs and taxpayers at an alarming rate and at a much faster rate than anyone else in our region, and we believe it’s because of the increased spending and increased taxes that are putting such a burden on our economy,” said Larry Hogan, a former member of Republican Gov. Robert L. Ehrlich Jr.’s cabinet and chairman of Change Maryland, a group that advocates for responsible government fiscal policy.

Hogan’s group, which has recently released several reports critical of the state’s economic policies, released a statement Monday highlighting the census figures.

Still, Hogan acknowledged that “taxpayers leave for lots of reasons, you lose jobs for all kinds of reasons, and you lose businesses for all kinds of reasons.”

That’s precisely what makes numbers harder to decipher, said Phillip L. Swagel, a professor at the University of Maryland School of Public Policy.

“The problem is that it’s hard to isolate the impact of tax policies on business formation from other factors,” Swagel said. “For example, government spending has increased over this period and that likely contributed to the improvement in D.C., while increased military spending likewise contributed to job creation and business formation in Virginia.

“The relatively weak performance of [Maryland] reflects many factors. Taxes are one of them and likely have been a factor, but it’s hard to know how salient compared to other factors,” he said.

While the state acknowledges the business losses from 2007 to 2010, that’s only half of the story, said Raquel Guillory, spokeswoman for Gov. Martin O’Malley.

“The Bush recession started in December of 2007 and ended in June of 2009,” she said. “While Maryland did lose jobs during the recession, as did every state, we have recovered 65 percent of the jobs we lost,” she said.

That equates to adding back 94,300 jobs since February 2010, ranking Maryland as 12th best among the states for job recovery, she said.

West Virginia has recovered 72 percent, ninth; Virginia has recovered 70 percent, 10th; Pennsylvania has recovered 63 percent 13th; and Delaware has recovered 34 percent, 29th. The national average is 44 percent, Guillory said.

Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and an international economics and economic policy expert, said it’s not surprising that Virginia lost a lower percentage of businesses.

“The kinds of issues that Prince George’s County and Baltimore have had don’t make them a desirable place to locate a business, especially Baltimore, and Virginia just doesn’t have that,” he said, alluding to the quality of the public school systems in those two parts of Maryland and drawing a comparison to Arlington, Va.

Maryland ranks 42nd in The Tax Foundation’s 2012 State Business Tax Climate Index, while Virginia ranks 26th. The Tax Foundation is a D.C.-based think tank that addresses tax policies and “the size of the tax burden,” according to its website.

While taxes are significant, the effects of regulation can’t be overlooked, Morici said.

“Just the proclivity of the government to write a rule about everything that exists, it just makes it a tough environment,” Morici said, adding that Maryland’s business environment is “kind of a metaphor and encapsulation of what’s happening to the country.

“The Maryland policy is the Obama policy, the notion that we need to be regulated,” he said.