Bringing in business

January 24, 1996|By Kalman R. Hettleman

IN THE RAGING economic civil war among the states to attract and retain businesses, Maryland business leaders are looking like the gang that couldn't shoot straight. By making a large cut in the Maryland personal income tax the centerpiece of their campaign, they are misrepresenting facts, holding a gun to the head of elected officials and pointed to miss the target.

They're right that the state needs to compete combatively against other states to capture and grow jobs. They're wrong, however, that slashing income taxes is the way to do it. What's more, they have grossly overstated the tax burden in Maryland, especially on businesses.

Business voices, including the Maryland Chamber of Commerce, which has led the charge to cut the personal tax rate by at least 15 percent, demonize the state as a ''tax hell.'' The governor's Economic Development Commission says tax reform is imperative and the personal income tax, in particular, is a ''key obstacle'' to economic advantage.

While statistical comparisons are suspect, by any standard this picture is misleading. The authoritative Advisory Commission on Intergovernmental Relations ranked Maryland, using 1992 data, 15th lowest among the states in overall tax burden (the percentage of a taxpayer's income paid for all state and local taxes). According to the Maryland Department of Fiscal Services, this measure is ''acknowledged as the best indicator of tax burden among tax economists.''

Maryland ranked fifth highest on personal income tax, but below average, nationally and regionally, on sales, property and other taxes. Maryland's corporate income tax burden was fifth lowest.

There is no evidence that lower taxes would be an effective competitive weapon. A recent University of Baltimore report, paid for by Maryland corporations, recommended cutting taxes based largely on the ''perception'' that the state was over-taxed. However, the report confessed, ''because economic and site-selection literature has not yet established a link between personal income taxes . . . and firm location decisions or economic growth, this perception is unproved and requires more research.''

Both studies actually rate business taxes as far larger impediments than personal taxes, and Maryland business taxes are already among the nation's lowest.

If taxes don't matter much, what does? The Chamber of Commerce's tax-cut drumbeat has drowned out evidence for many alternative strategies that have more potential. The Economic Development Commission report highlights some: targeted incentives and job-creation tax credits; customized work-force training; quick, coordinated customer services; aggressive marketing; improved access to capital and financing, and an expedited permitting process.

Education and infrastructure

National surveys of corporate executives reveal the importance of investment in education, transportation and technology infrastructure, and overall quality of life. In its 1994 study ''Bidding for Business,'' the Corporation for Economic Development, a national think-tank, detailed the healthy relationship between state spending for essential public services and economic growth.

The Chamber of Commerce's proposed 15 percent income-tax rollback would hemorrhage state revenues by around $600 million annually. Cutbacks in vital state services would result -- just as federal funds are vanishing. Maryland already lags, for example, in education funding. (According to the General Accounting Office, in 1992 Maryland ranked 35th nationally in education spending relative to state fiscal capacity.)

If so many more promising economic-growth strategies are available, why is the business community waging such a disinformation campaign on taxes? Why delude themselves and others? Here are some possible explanations for this folly-in-process.

* Poor business judgment. It's tempting to shoot for a high-visibility, short-term tax fix rather than design and implement a comprehensive, longer-term economic growth plan.

* The search for a scapegoat. Blaming taxes is a lot easier than accepting responsibility for policies of the past. The UB and Economic Development Commission studies add up, fairly or not, to indictments of public and private economic-development leadership in recent years. James Brady, Maryland secretary of business and economic development, told the Wall Street Journal: ''Every problem we have . . . is a self-inflicted wound.''

* Knee-jerk, anti-tax ideology and self-interest. To corporate executives with astronomical salaries, tax-cutting is the gospel of economic and political orthodoxy. They also benefit personally the most, particularly from the regressive income-tax cuts favored by the Chamber of Commerce.

* A self-fulfilled prophecy. If there is, as the business community claims, a wide ''perception'' that Maryland taxes are too high and stifle economic growth, business leaders have created that perception through their own misinformation.

It's time for the Maryland corporate community to take off its anti-tax blinders and focus on a more far-sighted battle plan. Let's get down to the real business of marketing, customer services, targeted incentives and other policies that have a far greater chance of boosting Maryland's competitiveness.

Kalman R. Hettleman teaches social policy at the University of Maryland Baltimore County.

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