The Maryland General Assembly is recycling old legislative proposals that would further enhance the state's anti-business reputation and dampen our prospects of emerging stronger post-recession. Three unnecessary bills — implementing combined reporting, increasing Maryland's minimum wage beyond the federal minimum wage, and reinstating the millionaires' tax — further advance a tax-and-spend and social engineering orthodoxy.
There is nothing new here. We've seen all this before. As the co-chairs of Maryland Business for Responsive Government, we would urge our legislators to take a broader view and encourage private sector-driven economic growth.
Combined reporting is a misleadingly simple term for a complicated new tax regime. Intended to collect more taxes, it requires companies with multistate operations to apportion their Maryland presence as if it were a company headquarters. Combined reporting was rejected last November by the Business Tax Reform Commission, which spent two years reviewing Maryland's corporate tax code. The commission found that combined reporting is too complex for either the government or the private sector to effectively manage and introduces uncertainty during challenging economic times.
The National Conference of State Legislatures analyzed the economic impact of combined reporting on states last year. It found that combined reporting harms state economies, particularly those that already have high business taxes. Maryland's corporate income tax is 8.25 percent, which is the 15th highest nationally, according to the nonpartisan Tax Foundation. Combined reporting would add another layer of taxation on an already high-taxed state. If business profits are further reduced through combined reporting, costs are passed on to consumers through higher prices and lower wages to workers — or companies can simply choose to locate to other states.
Raising the minimum wage is a periodic debate in both the U.S. Congress and in certain state capitols where there is a perceived need to regulate what the federal government is already regulating. Since the near-collapse of the economy in 2008, Congress has been silent on this matter, and for good reason. With record unemployment, the challenge is to get companies to hire again, not to dictate terms and conditions of wages.
The prevailing national political sentiment is to let the marketplace sort out hourly wages at least until gross domestic product is growing fast enough to reduce the unemployment rate. In Maryland, on the other hand, a bill would raise the hourly wage to $10 per hour, above the federally prescribed $7.25 per hour. With Maryland's unemployment rate hovering at record highs, this would increase the cost of doing business and jeopardize existing jobs.
Finally, the millionaires' tax has reared its head again after expiring Dec. 31. In 2008, the legislature raised the individual income tax rate to 6.25 percent from 4.75 percent on taxable income over $1 million. State revenue projections of this increased tax were $106 million in 2008, but the comptroller's office instead reported a net loss of $257 million at the end of that year.
As The Wall Street Journal noted nearly a year ago, a Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states. An objective analysis of this data shows this is a failed policy, so it is bewildering that this proposal is still taken seriously.
Instead of these harmful proposals, the legislature could be focusing its efforts on reducing Maryland's structural deficit, which would end the repeated raiding of the transportation trust fund and other dedicated funds. And they could address Maryland's $35 billion in unfunded retiree benefits, a necessary component of any serious attempt to fix Maryland's finances. Such a focus on the state's fiscal condition would reduce the pressure to raise taxes and ultimately improve Maryland's business climate. These bills miss that point. Although combined reporting, minimum wage and income tax hikes have little chance of passing, introducing this legislation makes headlines, causing site selection consultants, CEOs and other companies to dismiss Maryland as anti-business.
When he was re-elected, Gov. Martin O'Malley promised to move Maryland forward. None of these legislative proposals do that. They just rehash old, tired ideas that don't work. Legislators supporting these measures fail to grasp a simple economic premise: that forcing employers and taxpayers to pay more reduces business activity, employment and the tax base.
Marvin Mandel and Ellen R. Sauerbrey are co-chairpersons of Maryland Business for Responsive Government, a political research and education organization that works to improve Maryland's business climate. They may be reached at email@example.com.