Md. tax cut offers image-fixing help A friendlier smile toward businesses that could move here

November 21, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

Maybe the Money magazine attacks sting the most. Year after year, the magazine ranks Maryland as one of the nation's worst "tax hells," casting this state as fiscal bandit for Money's 1.8 million wealthy readers and angering governors who claim the study is unfair.

Now that Gov. Parris N. Glendening has proposed cutting Maryland's personal income tax by 10 percent over three years, analysts foresee a mildly stimulative direct effect, an extra $485 million a year for Maryland's $124 billion economy.

But greater hopes are held for a tax cut's indirect effects: public relations value, "pro business" symbolism and, yes, respect from Money.

Taxes should be cut, but "not because a lower personal income tax is going to have a significant impact on the economy of the state," said Michael Conte, director of the Regional Economic Studies Institute at Towson State University. Rather, Conte said, Maryland's reputation for high taxes and the arguments for its redemption have "virtually become a self-fulfilling prophecy. They have taken on a life of their own. In that light, we have to acknowledge the current version of reality."

Robert Fleischmann, chairman of ProVAR, a Baltimore County computer services company, said Glendening's plan "sends a very positive message to businesses. But I think it's got to be the beginning of a series of steps and of a long-term plan to attract and keep businesses in Maryland."

Maryland collects 5 percent of personal income over $3,000, and municipalities can add up to 3 percent on top of that for a total burden of 8 percent. That's not the highest rate in the land; Connecticut's, for example, is higher.

And the total tax burden borne by Marylanders is not as heavy as it is in some other states. Property taxes here are relatively low; so are sales taxes and business taxes.

Maryland ranks 25th highest in state and local taxes as a percentage of total personal income and eighth highest in state and local taxes per capita, said Richard Clinch, program manager for the Maryland Business Research Partnership, a University of Baltimore group supported by 14 companies.

But personal income taxes here are higher than in Delaware, Pennsylvania, Virginia, West Virginia and North Carolina, states that compete with Maryland for businesses that provide jobs. While income taxes aren't the first item examined when a business changes locations, business people said, they can influence moving decisions.

"It's very hard to say that it's something that, right up front, would make a business say, 'Gee, Maryland is not a place I want to do business,' " said Larry Moretti, senior manager with Fantus Consulting, a firm that helps businesses make relocation decisions. But "it is a factor at an individual level," he added. "An astute management team will look at the differential levels of discretionary income in one locality versus another," and how that might affect employees.

And many businesses, including many entrepreneurs that the state is trying to attract, are directly affected by the personal income tax, said James T. Brady, secretary of the state's Department of Business and Economic Development. Maryland has more than 300,000 small businesses, and, because of their legal structure, many pay taxes at the personal rate.

Glendening's proposal would lower Marylanders' highest personal income tax rate from 8 percent to 7.5 percent, when the local "piggyback" tax is included. Muncipalities' piggyback revenue would not be affected, Glendening said. The proposal would cut the state-only rate from 5 percent to 4.5 percent.

A 7.5 percent personal rate would be less than the 7.8 percent top rates in North Carolina and Pennsylvania. But it would still exceed Virginia's highest rate of 5.8 percent and Delaware's top rate of 6.9 percent. Whatever their relative level, taxes have had the attention of the Maryland business community, beating regulations, business incentives, homebuyers' closing costs and other issues as the No. 1 peeve in surveys. In polls of 750 companies over the last year by Clinch's group, 86 percent said tax cuts were an "important" or "most important" step for state leaders to take.

"How can anybody say anything bad about a tax cut?" said Peter Bowe, president of Ellicott International, a Baltimore-based dredge maker. "I can tell you that business people locally that I speak to all say that Maryland suffers from the perception that it is a high-tax state."

While Maryland's overall tax burden isn't as severe as some believe, Clinch said, its focus on income makes it more obvious. "We don't really have the sales taxes and nuisance taxes that you have in Virginia, but what people look at is their take-home pay," he said.

Neil Shpritz, executive director of the BWI Business Partnership, said a tax-cut plan "is a good sign for business climate."

Pub Date: 11/21/96

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