By Megan Poinski, Megan@MarylandReporter.com
(August 31, 2011)—Maryland needs to be more business friendly than Virginia to create more jobs and stabilize the state's economy, a panel of business leaders told the Senate Budget and Taxation Committee Tuesday.
The hearing, scheduled to discuss corporate taxes and job creation, zeroed in on how Maryland needs to become a better place to do business than neighboring Virginia, which panelists said is the state's only real competition in terms of getting businesses and creating jobs.
Jim Dinegar, president and CEO of the Greater Washington Board of Trade, talked about several large corporate headquarters that have left Maryland for Virginia, or chosen Virginia for its DC-area offices.
"Until you match the apple to that apple, and realize how deficient Maryland is in the things that are important to businesses, there are going to be other businesses" choosing Virginia over Maryland, he said.
And it doesn't matter if Maryland seems to be climbing the ranks to appear more business friendly, either. Dinegar said that as long as Virginia - which has the reputation of being more business friendly, has a lower 6% corporate tax rate, and has fewer discussions about making changes to the tax code - is doing better than Maryland, Maryland will suffer.
Poor job growth
And Maryland has been suffering in terms of job growth. Maryland Chamber of Commerce Vice President of Government Affairs Ron Wineholt said that about 147,000 Maryland jobs were lost during the recession, and only about 10,000 1,000 have been created in the last year.
Several committee members asked Wineholt what the General Assembly could do to help Maryland. Wineholt - as well as Dinegar and Manufacturers' Alliance of Maryland President Gene Burner - said that there is little that the state legislature can do to directly create jobs. But they can improve the way that the state deals with businesses.
"Maryland has to compete just like employers have to compete with other businesses," Wineholt said. "In the General Assembly, every member can make the business climate even better. …To the extent we can all work to make Maryland a better business climate, we have a better chance to put those people to work."
Steps to improve business climate
Dinegar, Wineholt and Burner gave the General Assembly advice on the types of legislation to enact and policies to adopt to improve business in the state - starting first and foremost with a plea from Wineholt to "do no harm" to businesses in the state. They included:
-- Stop debating corporate tax methods every couple of years and come to a solid decision. Dinegar said that a CEO would be unlikely to locate in Maryland if there is anything to indicate the corporate tax structure could completely change in the near future.
-- Use money earmarked for education to improve school quality and make graduates more ready to compete in the work place.
-- Keep Maryland's tax rate competitive.
-- Don't do unique things with taxes - like the "millionaires' tax" - that will give the state bad press among rich and powerful business leaders.
-- Institute bi-annual property taxes for corporations; property taxes are often the largest taxes corporations pay.
-- Increase the amount of money for tax credits. Burner said that Maryland only allots $6 million for its research and development tax credit - the same amount that was provided for the credit when it was introduced 10 years ago. Now, he said, the money is stretched extremely thin.
-- Stay away from combined reporting, which calculates corporate taxes based on how much companies make in all states that they are located, not where they are headquartered. Dinegar said that this would end up hurting the state more than it would help.
-- Make a decision on drilling for gas in Western Maryland's Marcellus shale deposits quickly, before the opportunity is gone.
-- Concentrate on the Baltimore harbor as a major East Coast distribution point, especially since imports from China and East Asia can get here easier by boat after the Panama Canal expansion is completed in 2014.
Economic uncertainty
Of course, the national economic situation also plays a large role in how successful job creation efforts will be in the area. Dinegar said that with so many large federal contractors in the area, and the congressional "Supercommittee" looking for places to cut spending before the end of the year, many businesses may hold off on new hires.
Dinegar added that businesses are uncertain about the economy as a whole. While they now have money to expand and hire more people, they are not taking the risk right now.
"On the economy overall, it is the uncertainty that is keeping people on the sidelines," he said.
Briefing on corporate taxes
A separate panel of analysts from the Department of Legislative Services briefed the committee on the state's current corporate tax structure, as well as ways that other states assess corporate taxes. Maryland's current corporate tax rate is 8.25%, increased during a special legislative session in 2007.
Maryland is one of just three states to have increased its corporate tax rate since 2007. Six states have decreased their tax rates in the last four years, but three of them have also instituted combined reporting, which was rejected by the Business Tax Reform Commission last year. Legislative Services Senior Manager Ryan Bishop said that corporate tax rates usually are lowered when combined reporting is instituted to mitigate the changes and even out revenues collected.
While Virginia has a lower corporate tax rate of 6%, Bishop said that the two rates cannot be easily compared. Tax credits and other conditions need to be taken into consideration when comparing Maryland's tax rate to other states.
In fiscal year 2012, Maryland is expecting to take in $845 million in corporate taxes. Legislative Services Senior Policy Analyst Robert Rehrmann said that the amount of revenue from corporate taxes tends to be volatile because there are just 60,000 corporations in the state, and the largest 300 corporations are responsible for 43% of all corporate taxes collected.