Maryland's business climate Search for silver bullet: Better regulatory system more promising than tax cut.

January 19, 1996

IN RECENT YEARS, Maryland has been unfairly accused of being a tax hell. The high taxes, we have been told, are the reason businesses bypass the state when they are looking to expand or relocate. The fact is there are other, more important reasons why Maryland isn't competitive with neighboring states in attracting business investment.

As reporter Jay Hancock pointed out last Sunday, Maryland's taxes are actually competitive with surrounding states. Virginia, whose marginal rate on personal income is greater than Maryland's, or Pennsylvania, whose corporate tax rate is 10.99 percent compared to Maryland's 7 percent, are considered to have much more hospitable tax systems for business.

The importance of these tax rates to business is arguable. Ernst & Young, the national accounting and consulting firm, ranks personal income taxes as 25th out of 28 relocation variables. On the other hand, groups such as Maryland Business Research Partnership, part of an anti-tax business group, say their surveys of corporate managers indicate taxes discourage new business.

Reducing Maryland's taxes may make the state slightly more attractive to businesses. Far more important, though, is changing the approach toward businesses by government -- streamlining regulations and insuring their enforcement is predictable, developing sophisticated employee training programs, and creating reasonable financial incentive programs.

In making made personal income-tax reduction the most important item on its legislative agenda for the last several sessions, the Maryland Chamber of Commerce emphasizes this issue beyond its intrinsic importance. Delaware, which ranks fourth in the U.S. in terms of its per capita tax burden and has a higher corporate tax rate than Maryland, has been able to attract dozens of banks and financial companies because of its favorable regulatory climate for that industry. If Maryland's legislators are genuinely interested in attracting business, they must look way beyond tax reduction.

Developing sensible regulatory laws, a responsive bureaucracy and an environment that welcomes and rewards new investment and job creation will produce far more beneficial results than a meager cut in personal income taxes.

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