Basu ignores Md. tax break for manufacturers

March 03, 2011

Economist Anirban Basu claimed that high corporate income taxes are one reason for Maryland's "inability to grow manufacturing ("Maryland's Economic Forecast Calls for Pain" Feb. 28). Nonsense.

Mr. Basu ignores the fact that, in 2001, Maryland enacted an enormous tax break for Maryland-based manufacturers that ensures that their profits are taxed only in proportion to the companies' in-state sales. As a result, a Maryland manufacturer with all its customers in other states (say, a supplier of components to an auto assembly plant in Kentucky) does not pay one cent of corporate income tax to Maryland. If that supplier expands its in-state business, it still doesn't pay any taxes. The same is true even for an out-of-state manufacturer that decides to locate in Maryland for the first time but sells nothing in Maryland.

Incidentally, enactment of this tax break didn't stop some of its main proponents, companies like Black and Decker and Alcoa, from shutting down manufacturing operations in Maryland after the state gave them exactly what they demanded. Their tax savings presumably paid for their moving vans.

Mr. Basu's claim that Maryland's corporate income taxes are relatively high did not come in a vacuum. Just last week, one of his clients, the Manufacturers' Alliance of Maryland, made the same claim in arguing against legislation to close corporate loopholes, even though that legislation would have very little impact on Maryland manufacturers but, instead, would mainly force out-of-state manufacturers that are selling in the state to pay taxes in the state.

It is unfortunate that, in his op-ed, Mr. Basu did not disclose that one of his clients has an interest in painting Maryland's corporate taxes as relatively high. For the record, I testified in favor of the loophole-closing legislation.

Michael Mazerov, Washington, D.C.

The writer is a senior fellow at the Center on Budget and Policy Priorities.

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