A Matter Of Fairness

Our View: Combined Reporting Might Be A Better Way To Measure Economic Activity, But Maryland Shouldn't Rush To Adopt It As A Solution To The State's Budget Woes

But the $170 million figure doesn't exactly make combined reporting a panacea for the groups seeking to soften the effect of state budget cuts, either. As the state's analysts pointed out, the figures they analyzed came from a year when the economy was expanding, not in one when the state is struggling to emerge from the worst downturn since the Great Depression. There's no guarantee that if the rules were applied now they would produce a windfall.

Maryland's tax structure is now uncomfortably sensitive to the swings of the economy. During boom times - such as the real estate bubble of 2005-2006 - the state posts huge surpluses that the government quickly spends, or in the case of the late '90s tech boom, gives back in a tax cut. When the economy - and particularly, the stock market - goes bust, as happened over the last 18 months, the income taxes on which the state depends for nearly a quarter of its revenue plummet.

It would be nice, before enacting a tax law change like combined reporting, to have a sense of how it would perform under varying economic circumstances in the hopes that we make the revenue structure more stable, not less. As fate would have it, we have just such an opportunity. The final report from the business tax reform commission isn't due until December 2011, giving Mr. Franchot's office time to see how the numbers would have played out during a recession and, we hope, a recovery.

Combined reporting isn't a radical idea - 23 states, including West Virginia and New York, employ it. And it might be a fairer way to measure economic activity and to divide the tax burden among businesses. But it should be approached with that goal in mind, not as a political battle between the little guy and big corporations.