Maybe it's time for Maryland to rethink its business plan

March 30, 2010|By Marta H. Mossburg

Rolling Stone writer Matt Taibbi famously described Goldman Sachs as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

His July article detailed how the history of the financial crisis reads like a "Who's Who" of the investment bank's graduates.

If Taibbi were to make the same analogy of the 50 states, Maryland could compete for top honor. The latest figures show that total direct federal expenditures grew 73 percent in Maryland from 2000 to 2008 from $45 billion to $78 billion.

Nationally, federal spending in all the states grew 65 percent from 2000 to 2008, so Maryland is taking more than its share of massive increases in federal largesse. The figures reveal federal dollars are 30 percent of the state economy.

Employment and income statistics show Maryland's flush position as the Hoover of national tax dollars is becoming more of a curse than a blessing. The Bureau of Economic Analysis shows that income rose in Maryland in 2009 while all but five states and Washington, D.C. saw a decline. At the same time, unemployment is rising and foreclosures are skyrocketing. Maryland unemployment rose to 7.7 percent in February from 7.5 percent in January and has the 10th-worst foreclosure rate in the country.

While rising income is a good thing, especially in a feeble economy, it's not so good if rising federal salaries are the only reason for it. The federal government said the gain is in part from state residents working in Washington because wages paid by Maryland businesses fell in 2009.

If the only wage growth is in government, which does not create wealth but redistributes it, Maryland is in trouble, especially when combined with the fact that the private sector grew more slowly than the public sector during the past 10 years. The growing lopsidedness means fewer people in the state will generate wealth than consume it.

Baltimore City is the apotheosis of an economy fueled by handouts. Anger always simmered beneath the surface over the city's sucking of resources from other parts of the state, but now it is boiling over in Montgomery County and other donor counties as funding for roads and schools dries up. It's not that far-fetched to imagine tea partiers across the nation marching on Annapolis like they did in Searchlight, Nev., last week to protest Maryland becoming the nation's Baltimore City. Why should such a rich state, they could argue, take all of the spoils?

Besides, even though many argue government is the state's savior, data show the opposite is true. Millionaires are moving out of the state -- and so is everyone else. IRS data shows that about 20,632 more people left Maryland than came to the state from 2007 to 2008. And the average household income of those leaving during that time was $56,454, compared to an average household income of $49,927 for arriving households. Those trends have been going on for the last five years.

A shrinking tax base will require the state to extract more from those who remain. That ultimately means higher taxes and/or fewer services. With the state facing a $30 billion unfunded liability for state employee pensions and other retirement benefits, it also means that more tax dollars will be allocated away from core government services to fund benefits.

If government is not making Maryland rich, as the IRS data show, and only a lucky few who work for the federal government are seeing higher wages, isn't it time to reconsider whether Maryland's high-tax, big-government model is the optimal business plan? Being a parasite on national taxpayers only works so long as a complacent America accepts the deal. Being a place that generates private jobs ensures a steady stream of highly educated, wealthy people will move to Maryland and fill tax coffers.

State legislators can wait until 50,000 people start to leave each year, or they can stop denying the question exists. Let the debate begin.

Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her e-mail is martamossburg@gmail.com.

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