Moody’s Analytics: Maryland’s Business Taxes “Stack Up Well” Compared to Peers

A report prepared by Moody’s Analytics titled “How Maryland Measures Up” indicates that Maryland has become increasingly dependent on federal jobs and has had difficulty growing its private sector employment. But, the analysis also found that Maryland’s business taxes were not excessively high when compared to a group of peer states.

This report and its findings were presented to the Maryland Economic Development and Business Climate Commission, otherwise known as the Augustine Commission, during a day long meeting held on October 2. The peer states identified in the report for comparison purposes included Georgia, Massachusetts, New Jersey, North Carolina, Pennsylvania and Virginia.

As reported by The Daily Record (subscription required),

“Contrary to popular belief, Maryland stacks up very well,” said Dan White, a senior economist for Moody’s Analytics.

White said the “biggest red flag” on growing jobs and business in Maryland is the personal income tax.

“Personal income tax, the combined state and local rates, is substantially higher than almost everywhere else,” White said. “Only Washington, D.C., and Oregon are higher as a share of the local economy.”

White said the state’s personal income tax is higher than its peers and the national average.

Major report findings are listed below.

  • First, Maryland’s economy is tied to the public sector to a greater degree than any of its competitor states, even neighboring Virginia. What is more, the relatively small contingent of private sector business the state does have is often interwoven with the federal government and this tends to crowd out private enterprise from focusing more on outside demand. This inability to build or maintain businesses that rely on demand from the private sector for growth holds back the state in times of recovery, and it is similarly this dynamic at work in hollowing out the middle of the state’s labor market.
  • Second, Maryland is a high-cost state in which to both live and do business. While some of this is often more perception than reality, especially in terms of business taxes, there is still a lot of truth to this and significant improvement can be made. The state’s existing tax structure, when state and local government levies are taken into account, puts a much higher than average burden on individuals. Businesses, though less burdened by taxes than commonly perceived, are weighed down by a number of higher than average costs, most notably electricity and other utilities. High utility costs stand out most for manufacturers and other mid-wage employers as a major differentiating factor between Maryland and competing locations for production.
  • Maryland has a lot of valuable assets at its disposal, not the least of which are its high quality of life and well-educated workforce. These two assets, when coupled with the state’s access to public and nonprofit research facilities, prime the state for high-value-added spinoffs that can help expand its demand base beyond the federal budget and into the private sector. Despite these potential advantages, this type of development has been rarer than in Maryland’s competitors to date. Maryland, though relatively well-off compared with the national average, lags Virginia, New Jersey, Pennsylvania and Massachusetts in terms of venture capital deals. Worse, Maryland venture capital investment has stayed relatively flat since the end of the Great Recession while competitors like Massachusetts have seen their deal volume accelerate and total investment more than double in that time period. While still in the game nationally, this clearly demonstrates that Maryland’s competiveness with its peers is ebbing. Maryland is standing still while other states on the East Coast are pushing ahead.
  • Maryland is also home to one of the deepest and largest ports on the eastern seaboard at a time when improvements to the Panama Canal are scheduled to boost the demand for deepwater East Coast ports. Other locations in competing states have answered the call with billions of dollars in upgrades to accommodate new business while Baltimore has done very little, particularly with its ground connections, which have the potential to be a chokepoint should any substantial increase in business come Maryland’s way.

Following the briefing by Moody’s Analytics, the Commission met in executive session to begin discussing recommendations. The Commission is scheduled to meet again on November 30 and a final report with recommendations is expected in December.

Prior coverage of the Maryland Economic Development and Business Climate Commission can be found on Conduit Street.

The full Moody’s Analytics report titled “How Maryland Measures Up” can be found here.