Chamber campaign is wide of the markI have been listening...


March 09, 1996

Chamber campaign is wide of the mark

I have been listening to Champe McCulloch (op-ed, Feb. 17) and the Chamber of Commerce's drumbeat about an income tax cut for two years now, and I feel compelled to respond.

The chamber contends that a primary reason companies are not expanding in or locating new facilities in Maryland is because of the state's high income tax rate. They claim the state's income tax is one of the primary reasons behind Maryland's recent sluggish economy. This shortsighted view is simply wrong.

First, the importance of taxes in site selection decisions has been examined by experts all over the country in great depth. Studies repeatedly show that a whole range of other factors play a much more important role than taxes. These include real estate costs, labor force skills and costs, transportation networks, market availability, regulatory environment, utility costs, proximity to suppliers and distributors, university resources, cultural enviornment and school systems. In the overall context, taxes play a very small role in the site slection process.

Regarding Maryland's economy, it has been slow, but for reasons totally unrelated to the income tax. To begin with, the state has lost 10 percent of its federal job base since 1987 when defense spending began to slow. Maryland's defense-related industries such as Westinghouse and Lockheed-Martin have been hit hard. Many other non-defense related contractors who have depended on work from the federal government have either shrunk or been forced to go out of business.

Technological advances and deregulation in the banking industry has resulted in downsizing and consolidation. With full interstate banking now being implemented, further reductions could occur. The state's overbuilt commercial real estate market has plagued that industry throughout the 1990s. Only recently has commercial construction begun to pick up in the retail and industrial markets. The utilities industry has also been pressured to downsize and cut costs. We should not forget that Maryland's economy grew faster than the national average throughout the 1980s with essentially the same tax structure it has now.

I need to set the record straight regarding the state's tax system. Yes, thje personal income tax is relatively high. It is the combination of the state's relatively low 5 percent rate with the added local rate of up to 3 percent that causes it to be high. But let's not be so naive and shortsighted as to judge our entire tax system on one tax alone. We also happen to have among the lowest sales, property and corporate income taxes in not only our region, but in the whole country. The state's sales tax ranks 46th, the property tax is 35th and the corporate income tax is 46th in the country.

Overall, taking all of Maryland's taxes into account, we rank 36th. Taxes in 35 of the 50 states are higher than Maryland's.

Our tax structure did not get this way by accident. It reflects a series of decisions made over the years after listening to citizens, businesses and interest groups. It reflects the consensus that emerged that a heavy emphasis should be placed on fairness and equity and that the concept of ''ability to pay'' should be paramount. This theme is prevalent throughout the state's tax system. It can be seen in the state's progressive income tax, which asks those who make more, to pay a little more in taxes. It can be seen in the state sales tax which minimizes regressivity through exemptions for groceries, medicine and utilities.

Citizens, business executives and public officials have no need to apologize for our tax system -- it is simply designed to raise revenues in a way that maximizes fairness and equity, so that high-income taxpayers, not working families, bear a little more of the burden. It is our heavy reliance on the personal income tax that enables us to keep the more regresive sales and property taxes low, and keep the one tax that truly matters to businesses -- corporate income taxes -- low.

The chamber should be trumpeting the state's tax structure as one of its assets, not one of its liabilities. If they try hard enough, their constant criticism of the state's tax climate may become a self-fulfilling prophecy.

The chamber wants us to believe that corporate executives making site selection decisions do not care about our state's low corporate income tax, our state's low sales tax and zero in on one thing only -- the high income tax -- and then proceed to take Maryland immediately off the list. We know that is not true; the income tax is simply not the significant, overriding factor the chamber portrays it to be.

If the chamber channeled the energy and resources it has devoted to cutting the income tax cut toward promoting and selling Maryland's many assets, we would see a lot more businesses moving to and expanding in Maryland.

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