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Marta Mossburg: Maryland should fear Bob McDonnell

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Marta Mossburg

Best thing that could happen to Maryland in the Virginia governor's race would be for Democrat Creigh Deeds to win.

Let me explain.

Deeds, like Maryland Gov. Martin O'Malley, believes government creates jobs. This worldview supports higher taxes to pay for more government in a never ending cycle of bigger government and fewer tax-generating jobs. And it eventually leads to tax increases, as it did in Maryland two years ago when the General Assembly raised income, corporate and sales taxes to fund a bigger budget.

So, by bringing Virginia down, he would make Maryland, one of the highest-taxed states in the country, more attractive again as a place to locate a business and to live. Hoping the worst for Virginia is not the best way to plan for Maryland's future, however.

And polls show Republican candidate Bob McDonnell will deny Gov. Martin O'Malley and state legislators the opportunity to rely on a Deeds win. McDonnell is ahead by a widening margin in the polls going into today's election. If he wins, the likelihood that tax rates between the two states both competing for lucrative federal contracts and grants will only widen.

McDonnell pledged to make Virginia "the most business friendly state in America for small business." Politicians often renege on their promises. But given Gov. O'Malley's focus on building "one" Maryland by redistributionist policies, that only can mean his state will lose -- people, business and tax revenue -- to its southern neighbor unless it reduces the tax burden.

Here is why: Maryland's corporate income tax rate is 8.25 percent, in Virginia it is 6 percent. Virginia's personal income tax rate tops out at 5.75 percent. In Maryland, the rate climbs as incomes get higher, reaching over 9 percent on income over $1 million. The Tax Foundation estimates that a couple earning $75,000 in Maryland pays an average 7.5 percent rate, taking into account local income tax levies. And sales taxes are higher in Maryland, too - 6 percent versus 5 percent in Virginia. So anything Virginia does to lower its tax burden would exacerbate the differences between the two states and give it even more of a competitive edge.

As a new study points out, these differences ultimately lead to less money for the state treasury.

"Empire State Exodus: The Mass Migration of New Yorkers to Other States" by Wendell Cox and E.J. McMahon of the Empire Center shows that high-tax states are losing people to those with a lighter tax burden. New York, the focus of the study, lost more than 1 million people from 2000 to 2008. California also lost more than 1 million people and Maryland lost nearly 86,000 people to migration from the state, making it one of the top 10 losers in the country.

Virginia, on the other hand, gained about 153,000 people from migration in the same time period, the 12th-biggest influx of people into a state in the country.

One of the most interesting findings in the study was that those leaving the state had higher incomes than those moving in. "The average adjusted gross income of taxpaying households leaving New York between 2006 and 2007 was $57,144, while the average income of households moving into New York was $50,533 -- a difference of 13 percent. Non-migrating New York households as of 2007 had an average income of $63,277."

If that finding holds true for other high-tax states, it means crossing a certain tax threshold creates a structural change in the population of a state that will eventually lead to falling revenue. And it shows that states do not live in a vacuum -- a timely message for Maryland state legislators considering raising taxes once again when they return in January. The study also suggests that the governor and state legislators should shift their focus from plugging state budget holes to making Maryland more competitive to surrounding states. If that happens, it would make the entire Washington region, not just Virginia, attractive for business.

Examiner Columnist Marta Mossburg is a senior fellow with the Maryland Public Policy Institute and lives in Baltimore.

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