Maryland's increasing tax burden is weighing down the state's economic outlook, according to an annual ranking of state business climates.
The 2013 "Rich States, Poor States" report by the American Legislative Exchange Council, a conservative policy group, saw Maryland's economic outlook rating plummet from 20th among states to 35th. Though Virginia also fell from last year's third-place ranking, it was still among the top of states at fifth in the new report.
"That was certainly one of the most precipitous falls in economic competitiveness anywhere in the country," said Jonathan Williams, director of ALEC's Tax and Fiscal Policy Task Force. "You've seen over the last several years, Gov. [Martin] O'Malley's 32 separate tax and fee increases in his tenure as governor. Certainly that is one of the major drivers in the precipitous fall."
|States with the best economic outlook:|
|2. North Dakota|
|3. South Dakota|
|States with the worst economic outlook:|
|49. New York|
|45. Rhode Island|
The report lists the 32 tax and fee increases since O'Malley took office in 2007, including this year's addition of a wholesale tax to the sale of gasoline to fund transportation projects and last year's income tax increase on Marylanders who make more than $100,000.
The report looked at 15 variables in coming up with state rankings, including personal and corporate income tax rates, progressiveness of taxes, the number of workers on the government payroll and the state's minimum wage. States with lower taxes and fewer restrictions on business rank higher.
Maryland scored poorly on its corporate income tax rate, personal income tax rate and recently passed tax increase. However, the state got high marks for not raising the minimum wage above the $7.25-per-hour federal rate and for a low sales tax burden, although that tax was raised from 5 to 6 percent in 2007, O'Malley's first year in office.
Williams said Virginia's lower tax rates resulted in its higher ranking and would make it more appealing to businesses and people looking to relocate.
"What Virginia did in taxes -- the transportation tax hike -- pales in comparison to Maryland's tax hikes," he said. "Virginia does not levy a death tax, Virginia is a right-to-work state, workers' comp costs for employers are lower."
However, Greg LeRoy, executive director of the left-leaning economic policy group Good Jobs First, said the notion of ranking state business climates is bunk.
"States are not a meaningful unit of competition when companies are deciding where to locate," LeRoy said. "The meaningful unit is metropolitan areas. Companies look at what those have to offer more than state incentives when looking to relocate. The metro areas can vary more than states. Some metro areas contain many states."
LeRoy said rankings based primarily on tax rates typically have an ulterior motive.
"The real agenda is a policy or political agenda. It's about trying to get states to lower taxes."