Wednesday, February 20, 2013

Two Bills Filed to Lower Maryland's Corporate Tax Rate

Two bills filed in the current legislative session of the Maryland General Assembly propose to lower the state’s corporate income tax rate.  One bill, SB34, proposed by Republican Senator David Brinkley would immediately cut Maryland’s 8.25% corporate tax rate down to 6 percent.  The other bill, SB 411, filed by Senate Majority Leader, Rob Garagiola, a Democrat, would gradually reduce the current rate .05 percent each year over several years to 7.75 percent.

Maryland increased its corporate tax rate to 8.25 percent as part of Governor O’Malley’s $1.4 billion tax package during the 2007 special legislative session.

According to Maryland Reporter, Garagiola, and the two Democratic chairs of the Senate and House tax-writing committees, told a Maryland Chamber of Commerce business policy conference they were open to lowering the corporate rate.

Economist Anirban Basu told the same audience that lowering Maryland’s corporate tax rate was crucial if Maryland’s economy, which is overly reliant on federal spending, is to attract private capital and weather any federal spending cuts that would come with sequestration.  Basu argued that in order to compete with Virginia, the rate has to be slashed.  Virginia has 6 percent corporate tax rate.

Maryland’s high corporate tax rate is considered one of the many reasons Maryland has a well-earned reputation as a state with an unfriendly business climate.  Maryland ranks 41st in the Tax Foundation’s Business Tax Climate 
Index, and 40th in CEO Magazine’s Best/Worst States to do Business.

A Department of Legislative Services analysis of Brinkely’s bill stated that state revenues would decrease by $300 million over the next five years.  Brinkley defended his bill before his own Senate committee arguing that lowering the corporate rate would attract more businesses and jobs to the state.

Forbes columnist Joel Kotkin points out that there is a national debate over how to generate economic growth between high tax/tax hiking blue states, and low tax/tax cutting red states.  Kotkin says the data suggests low tax red states are winning the argument.

Garagiola’s Legislative Director, Erin Robertson, told Watchdog Wire Maryland, that lowering the corporate rate would be good for job creation and make Maryland competitive with surrounding states.
Some like Change Maryland Chairman, Larry Hogan, are not impressed with Garagiola’s gradual reduction.   

“While we are pleased that the majority party is listening to Change Maryland about the need to cut taxes,” Hogan said, “lowering it to 7.75% over eight years is a joke.”
Robertson said the gradual reduction would protect the state’s general fund revenues.

“It’s too late for timid half measures,” Hogan said.  “The corporate income tax needs to be reduced immediately and dramatically, perhaps even eliminated altogether, to stop the bleeding of 6,500 businesses and chronic economic under-performance in the region."

Brinkley’s bill has no co-sponsors, while Garagiola’s bill has nine co-sponsors including four Republicans.

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