Maryland Businesses See the Biggest Return on Their Tax Investment

Though – depending on who you ask — Maryland may or may not be dubbed “business friendly” by the assorted organizations that compile state business climate rankings, in fact the state does stand out on one important measure: the value businesses receive for their tax investment.

Maryland’s business community gets as much as $1 in benefits for every 80 cents it invests in the state through taxes, the best value in the country, according to a report by the Council on State Taxation (a business group) and Ernst & Young. In part, this result is because corporate taxes make up a smaller share of Maryland’s overall revenues than in all but one other state. But it is also because the state has consistently recognized the benefits of investing in the pillars of our modern economy – including education, healthcare, transportation, and public safety.

Today, the Maryland Economic Development and Business Climate Commission will hear testimony from representatives of a few of the many organizations that have, in various ways and with varying degrees of rigor, studied the relationship between Maryland’s tax structure and its business climate. It is essential that commission members consider what they will hear  in the broader context of the very real strengths of Maryland’s business climate.

Commission members must also recognize the subjective nature of business climate rankings. A 2013 analysis by Peter Fisher, a national expert on public finance, found profound and elementary errors across the board. Effects are presented as causes, methodologies involve factors that have no empirically proven relationship to economic growth, and they frequently ignore major differences among state tax systems. The rankings wildly contradict each other and are not reliable in predicting which state economies will thrive. Instead, findings are often closely correlated with the political agenda of the organization doing the research.

Taxes are a small portion of businesses’ overall expenses, as Fisher explains, and Maryland has a history of using those tax investments in ways that benefit businesses and continue to grow the economy. While learning more about the business rankings processes may be an interesting exercise, there are many more important factors that affect business and economic growth in Maryland. The commission must take these rankings with the grain of salt they deserve.