WASHINGTON – Numerous tax increases during the past year have turned Maryland into the nation’s sixth-worst business tax climate, according to a recent study.
The Washington-based Tax Foundation, a non-profit research group, ranked Maryland 45th among the 50 states, down a staggering 21 spots from last year. In addition to criticizing state tax increases, they labeled Maryland as having “by far the worst individual income tax in America.”
The state rated 24th in the last year’s study, but dropped largely due to Democratic Gov. Martin O’Malley and the General Assembly’s approval of more than $1.3 billion in tax increases last November.
Among the increases, the report pointed to the corporate income tax, up from 7 to 8.25 percent; sales tax, up from 5 to 6 percent; and cigarette excise taxes, up from $1 to $2 per pack, as being especially significant. All took effect in January.
“Taxes diminish profits,” said the report, released Oct. 6. “Thus a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.”
State officials did not comment directly on the report, but defended Maryland’s taxing methods.
“There are several different studies and you never know the agenda behind the groups that do them,” said Joe Shapiro, spokesman for Comptroller Peter Franchot. “But we believe that the business climate in Maryland … is among the best in the nation.”
The Tax Foundation rated states primarily on their individual income tax, corporate tax, sales tax, unemployment insurance tax and property tax, with heavier emphasis placed on the first three areas.
Maryland rated favorably in sales and corporate tax, ranking 10th and 14th respectively. But the state was 31st in the unemployment insurance tax, 34th in property tax and dead last in individual income tax.
Neil Bergsman, director of the independent and non-profit Maryland Budget and Tax Policy Institute, criticized the report, saying that despite its tone, taxes are not necessarily bad for business.
“Clearly, (the Tax Foundation’s) agenda is to reduce the tax burden on people with the highest income,” said Bergsman, whose organization focuses on the effects of tax policy on low- and middle-income families. “Taxes pay for education … they pay for roads. And these things are good for business.”
Bergsman pointed out that some of the nation’s more affluent states did not fare well in the study. Three states that rank high in most income studies, Connecticut, Maryland and New Jersey, ranked 37th, 45th and 50th respectively.
“All three of those states get pretty poor ratings from the Tax Foundation,” Bergsman said, “which kind of suggests that their policy preferences are not well-connected with economic well-being.”