Making recommendations to improve Maryland’s business climate through regulatory reforms and legislation might have been the easy part for Norman Augustine and the Maryland Economic Development and Business Climate Commission.
Augustine now leads his commission into phase two of an effort begun last spring when the panel was created by House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller Jr. The chairman of the group that now has come to be known as the Augustine Commission harbors no illusions when it comes to the challenges of examining tax structure in the state.
“Now we come to the hard part,” Augustine said, adding that he was reminded of his time eight years ago on a panel looking at an issue known as deemed exports — a category of trade where goods don’t leave the country but are paid for with foreign currency.
“I changed our name to the Committee of Doomed Experts,” Augustine said. “My fear is that we may follow in those footsteps. I’m not sure. This will be a challenge.
Earlier this year, the Augustine Commission delivered a 129-page report including recommendations that formed the basis of five bills — now signed into law — aimed at improving the state’s business climate, including reviews of proposed regulations and the creation of a state commerce secretary.
Busch and Miller extended the work, asking the commission to examine more deeply the state’s tax structure, which was a source of some complaint from business groups who met with the commission last summer.
Concerns about taxes also were a driving force in the 2014 election of Republican Gov. Larry Hogan, who campaigned against what he called the 40 tax and fee increases under then-Gov. Martin J. O’Malley.
“I would agree that the pendulum has gone a little, we’re out of balance in Maryland. We’ve gone a little too far and I think the election certainly made us realize it,” said Sen. Edward J. Kasemeyer, D-Howard and Baltimore Counties and chairman of the Senate Budget and Taxation Committee. “We’ve got to come back, but I think we’ve got to approach it in sort of a surgical way because that’s really the only thing we can do. We’ve got to decide where can we make the greatest impact? What can we do, and place our emphasis there. We’re not going to make sweeping across-the-board changes in lots of taxing categories.”
Legislative analysts told the commission last week that the state relies more on taxes than non-tax sources. About 58 percent of all state and local revenue comes from taxes, with a high reliance on personal income tax. Nationally, state and local taxes equal about 50 percent of state and local revenue.
John L. Bohanan Jr., a former Democratic delegate from St. Mary’s County, said the perception that state taxes are high exists because the state provides aid to local government in ways that are not done in other states.
“It’s pretty easy to solve our tax perception problem at the state level by shifting it off to the counties,” said Bohanan. “We’ve been very generous to the local jurisdictions. We get beat up all the time at the state level while they’re reducing their taxes or they’re holding them and they’re hollering for transportation funds. They’re hollering for more police aid and keep that education funding coming.”
Corporate income taxes account for about 2.9 percent of the state’s tax revenue. That less than the national average and third-lowest in the region behind Virginia and West Virginia.
Maryland’s per-capita tax burden in 2011-2012, the most recent figures available from the U.S. Census, is $5,127 or 13th highest in the nation. It’s also the second highest behind Washington DC and its $9,344 per person tax costs. Those same numbers show the state collects more state and local taxes per person than Virginia (by about $1,100) and the national average (about $700).
Maryland is a rich state and home to a well-educated workforce that earns more. As a percentage of personal income, Marylanders are paying 9.6 percent in taxes and rank 30th in the nation — lower than the 10 percent average and second in the region to only Virginia, whose residents pay 8.3 percent and rank 46th in the nation.
And all of that money goes to government services. The biggest three expenses — K-12 and higher education and health care — are all expected to increase. Education advocates are currently undertaking a review of what the state spends on education that will likely lead to the recommendations to expand the $1.2 billion Thornton funding formula enacted in 2002. In just four years, state spending on Medicaid will consume one of every three general fund dollars, according to legislative analysts.
Some members, including Augustine, hope to be able to identify “low-hanging fruit” that can be reduced or eliminated from the tax structure. Deeper cuts that affect businesses may be harder-fought between now and when the commission is scheduled to deliver its report in late December.
“It’s going to take a lot of courage and a lot of compromise, I suspect, if we’re going to provide anything that will be of any value,” said Augustine.