For some people, “The road goes on forever and the party never ends,” as Robert Earl Keen sings. But for government, the party is clearly over as tax revenues plummet across the country.
Maryland Gov. Martin O’Malley must cut about $1 billion from the current budget because of falling tax revenue. And the most recent economic outlook from the Board of Revenue Estimates shows the state expects less revenue next year than originally anticipated.
O’Malley repeatedly stresses that things could be worse and are much worse in other states.
According to Forbes, the governor is right. The magazine last week ranked Maryland 12th in its “Best States for Business” survey. It scored in the bottom 10 on costs of doing business and in the bottom half for regulation, but above average in the survey’s four other categories, including labor supply and quality of life.
Education Week ranks Maryland public schools the best in the nation. And the latest census statistics show that residents are the richest in the nation and getting richer, with a median state household income of $71,000 — the median income in Montgomery County is above $94,000.
The good news is that the state is faring better than other states in hard times. The bad news is that Virginia is doing better and will prosper at Maryland’s expense without significant tax changes.
Forbes listed it as the best state for business for the fourth straight year, it has a lower unemployment rate than Maryland and taxes are significantly lower. The nonpartisan Tax Foundation ranks Maryland 45th of the 50 states for its business tax climate and Virginia 15th.
Because the recession hit just as state legislators passed a slew of new taxes in 2007, it’s so far difficult to extract their effect on the state’s economy from the implosion going on around the country and world.
But as the state recovers, common sense says the state with the better economic climate will win more of the talent and businesses that chase it when the two states’ equally prime location to Washington is factored out.
Census statistics already make the point. Much ado was made earlier this year when fewer millionaires filed taxes in Maryland. Some blamed the new income tax rate for high earners passed in 2007 for pushing the wealthy out of the state. Investment losses are the most likely explanation at this point for the wealthy, but the bigger issue is that more people want to leave Maryland than enter.
As the American Community Survey shows, Maryland is losing residents to Virginia, Pennsylvania, Delaware, North Carolina and even West Virginia. Notably, it lost 59,000 people from 2005-2007 through migration.
The other states listed above, each of which has lower taxes, gained residents through migration over the same time period. (For an interactive map of migration patterns, go to the Pew Research Center.)
And these statistics measure movement before the tax increases, hardly a welcome mat to new businesses, especially during rough economic times. And because Maryland and Virginia both depend heavily on jobs, contracts and grants from the federal government – the new business of the United States as the stimulus packages and bailouts make clear – the state that makes it easier to take advantage of that opportunity will emerge the winner.
Rocky Worcester, the recently retired head of Maryland Business for Responsive Government, made a valiant effort over 25 years to inform residents and legislators of the consequences of higher taxes during his tenure.
But Maryland legislators seem to think they are immune from the real world. If the state geographically wrapped around D.C. like a doughnut, it might be forgiven for its blase attitude toward economic fundamentals.
But it doesn’t. As Donna Arduin and Wayne Winegarden wrote earlier this year in “Improving Maryland’s Economic Competitiveness,” a paper for the Maryland Public Policy Institute, the state needs to rethink its priorities to thrive.
They wrote: “Ideally, Maryland needs structural tax reform; but at a minimum, the state needs to repeal the recently enacted tax increases. Doing so requires the state to reduce its long-term spending commitments: Instead of doing ‘more with less’ the state must do ‘less with less.’ ”
But if Maryland legislators maintain their present attitude and policies, the party will be over permanently in Maryland, not just for the duration of the recession.
Examiner Columnist Marta Mossburg is a senior fellow with the Maryland Public Policy Institute and lives in Baltimore.
