Md. CEOs want to see state tax reform, spending efficiency

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African-Elephant at Maryland Zoo in Baltimore (Photo by Jeffrey F. Bill)

African-Elephant at Maryland Zoo in Baltimore (Photo by Jeffrey F. Bill)

By Staff, MarylandReporter.com

The CEOs of Maryland’s major businesses have found the “elephant in the room” that stands in the way of economic growth here: the state’s non-competitive tax structure.

That was the conclusion of a report on Maryland competitiveness by the Greater Baltimore Committee released Wednesday. The finding came out of a survey of 250 Maryland CEOs and a June conference with a smaller group of 50 executives.

“Maryland’s tax structure stands out as our state’s single, most-cited business-climate deficiency in the opinion of chief executives who participated in the GBC’s Chesapeake Conference and in the majority of published business climate rankings, most of which rank Maryland high in other categories,” said the report’s executive summary.”It is the ‘elephant in the room’ in any discussion of Maryland’s business competitiveness and it detracts from the state’s many significant strengths as a business location.”

To which Republican candidates for governor and legislature might respond quizzically: “Ya think?” And the leadership of the Democrat-dominated state government might say: “Is that so?”

Greater Baltimore Committee's Chesapeake CEO Conference in June.

Greater Baltimore Committee’s Chesapeake CEO Conference in June.

This view of Maryland’s competitiveness is not a new conclusion for the GBC, headed by Don Fry, a former Democratic state senator who tries to bridge the gap between the more conservative business leaders and the Democratic politicos that control the levers of government.

Top priority: independent, private-sector commission on tax structure, spending

To remedy the situation, “voting by CEOs distilled into one clear, overwhelming consensus as to what should be the top-priority recommendation for immediate implementation,” the report said:

“Create an independent private-sector commission to study Maryland’s tax structure and fiscal appropriations and make recommendations to achieve a more competitive tax structure and improved state spending efficiency that complement today’s economy and business growth sectors.”

tax definition in dictionaryThe report explained: “The challenges of Maryland’s tax structure are consistently cited by most business climate reports, including many that rank Maryland high in other categories.

“Conference participants agreed that strategic, but not-fiscally-debilitating, revenue-neutral adjustments in Maryland’s tax structure, coupled with strengthened efficiency in government spending, could significantly improve our state’s competitiveness as a business location.”

A key potential goal of such restructuring could be to find a way to reduce the state’s personal income tax rates, as applied to small business entities including sole proprietorships, Sub-chapter S corporations, LLCs and other business entities whose earnings are “passed through” to the income tax returns of individuals owning the businesses.

Business executives and economic development experts in Maryland say that current state taxes on “pass through” earnings are a significant impediment to business development.

Baltimore port ship (by jomiwi on flickr)

Baltimore port ship (by jomiwi on flickr)

The GBC report said a study of the tax structure should be complemented by an independent, top-to-bottom assessment of Maryland’s budget and appropriations to ensure strategic priorities are effectively reflected in spending.

While the 50 participants in June’s Chesapeake Conference were dominated by business CEOs, including banks, law firms, insurance and developers, there were also representatives of the nonprofit community and higher education, including former top aides to Gov. Martin O’Malley. But there were no elected officials or politically appointed officials in the group.

Other top priorities: transportation, infrastructure, education  

Other top priorities in order of preference were:

  • Develop a 10-year transportation strategy. Develop a specific, balanced strategy for investing in major roads and transit projects that will maximize economic growth.
  • Invest in the port and airport. Position the port and airport to seize looming business opportunities.
  • Implement regulatory reform. Conduct a comprehensive study of existing regulations and the current regulatory review process and implement ways to streamline the state’s regulatory processes and regulatory enforcement approaches.
  • Deploy a coordinated STEM strategy. Better align K-12 and higher education to a coordinated strategy to strengthen Maryland’s workforce – in terms of quantity and capabilities – in science, technology, engineering and math (STEM).
  • Invest in infrastructure and policies to nurture innovation and entrepreneurship. Aggressively invest in infrastructure and implement policies to nurture the state’s growing IT and cyber industries.
  • Strengthen state economic development resources. Develop more targeted, focused, outcome-driven state programs to promote economic development supported by more robust state funding and incentives.
  • Implement outcome-driven accountability in K-12 education. Incorporate constructive accountability processes and measured outcomes into public education.
  • Leverage business resources and partnerships. Engage and incentivize business partnerships in a full-range of infrastructure development.