CUMBERLAND — Maryland ranks among the worst states for its business tax climate, according to rankings complied by the Tax Foundation.
The ranking doesn’t surprise a local legislator who says changes in the way things are done in Annapolis, along with a power-shift to metropolitan jurisdictions, have led to negative changes in tax policy.
“We used to look at the budget and growth in revenue and stay with that. In good economic times, revenue would increase and you could spend more on specific programs. When the times were bad, we cut the budget,” Delegate Kevin Kelly said.
Now though, spending increases come during even tough economic times, because legislators and the governor want them, whether the revenue is there or not, Kelly said. The growth in the budget now outstrips both the rate of inflation and the state’s populations growth, he said.
The taxes hurt both individual taxpayers and small businesses. Maryland ranked 41st this year out of all 50 states, according to the Tax Foundation.
That change in thinking has grown along with a shift in political power, Kelly said. When Kelly entered the General Assembly in 1987, conservative Democrats were a large block and together with moderate Republicans, set the tone for the legislature. “We had a rural speaker of the House and rural legislators headed up many committees,” Kelly said.
Over time, the big three counties of Montgomery, Prince Georges and Baltimore City grew in power and influence and democratic politics shifted to the left. Those three jurisdictions typically back any program by the governor and together have 65 votes, near the 71 votes needed for a majority. Another nine or so legislators usually vote with that block, Kelly said, assuring a majority who are willing to expand programs and raise taxes.
The metropolitan legislators don’t understand the concept that tax hikes on liquor and cigarettes hurt business in areas where people can just drive a few miles to buy those items much cheaper. In addition, the legislators from large jurisdictions don’t understand areas of the state that can’t rely on money and operations doled out by the federal government, Kelly said.
The current situation leads to a built-in majority for any program expansion or new taxes proposed by the governor, Kelly said, and he doubts things will change anytime soon.
Democrats who think about going against the grain face reprisals, mainly by the possibility of having a primary opponent backed by the powers in Annapolis and the Democratic Party.
Kelly, along with the rest of the District 1 delegation, don’t have a lot of leverage. State Sen. George Edward and Delegates Kelly, LeRoy Myers and Wendell Beitzel stand for fiscal responsibility, but often find themselves fighting a losing battle, Kelly said.
The State Business Tax Climate Index, now in its 10th edition, collects data on more than one hundred tax provisions for each state and synthesizes them into a single, easy-to-use score. The states are then compared against each other, so that each state’s ranking is relative to actual policies in place in other states around the country. A state’s ranking can rise or fall significantly based not just on its own actions, but on the changes or reforms made by other states.
The top ten states in 2014, according to the report, are Wyoming (1), South Dakota (2), Nevada (3), Alaska (4), Florida (5), Washington (6), Montana (7), New Hampshire (8), Utah (9), and Indiana (10).
The 10 lowest ranked states in 2014 are Maryland (41), Connecticut (42), Wisconsin (43), North Carolina (44), Vermont (45), Rhode Island (46), Minnesota (47), California (48), New Jersey (49), and New York (50).
“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome, or economically harmful,” said Tax Foundation economist Scott Drenkard.
“By contrast, the states that improved did so because they are moving closer to a tax code that collects revenue without unnecessarily distorting business decisions. Their tax codes became more neutral.”
Kelly said his constituents feel “beaten” down by the state’s tax policies. “They work hard and bring home a paycheck and see that an inordinate amount goes to taxes,” Kelly said.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Matthew Bieniek can be contacted at firstname.lastname@example.org.