Doing the Tax Dance
It’s an election year and Republicans all over the country are doing the tax dance. Here in Maryland, the dance is particularly loud as Republican candidates from Bob Ehrlich down to the local dog catcher candidates are joining the dance.
To do the dance you first claim that taxes are far too high. Then you point to government waste. You claim that high taxes are driving businesses away and then you promise to cut taxes. if asked what programs will be cut, you deny that there will be any cuts because you will only cut ‘waste’ or you say you will have to study them. Never ever mention that any government services are good or useful.
Republicans like to claim that Maryland is a ‘high tax’ state and, depending on how you count, that might be true. But it’s not clear if that’s a good or bad thing. Let’s take a look at some numbers.
If you look at tax revenue per capita, Maryland ranks 15th (or did in 2007, the latest year I have full data for). The top five are Alaska, Vermont, Hawaii, Wyoming and Connecticut. The bottom five are Tennessee, Missouri, Texas, New Hampshire and South Dakota.
But per capita state taxes are not the only way and certainly not the best way to measure taxes. States with relatively high incomes have to spend more on teachers, police officers, truck drivers, mechanics and lawyers to be able to offer competitive salaries. So let’s look at taxes as a percentage of income. From this perspective, Maryland comes in 43rd among the 50 states. with tax revenue coming in at about 5.59% of personal income. The top five states (highest taxes) are now Alaska, Vermont, Hawaii, Arkansas and West Virginia and the bottom five (lowest tax) are Florida, Colorado, Texas, South Dakota and New Hampshire.
But wait! States differ radically in how they divide responsibility for certain things between the state government and local government. What does it look like if you include both state and local taxes? Maryland is one of the few states that allows localities to levy income taxes. If we add together state and local tax revenue for each state Maryland now comes in 30th in taxes as a percentage of income at 10.2% (vs. national average of 10.7%). Alaska, New York, Wyoming, Hawaii and Vermont are the highest tax states while Colorado, Alabama, Tennessee, New Hampshire and South Dakota have the lowest taxes.
So, when someone says Maryland is a ‘high tax’ state, feel free to point out to them that Maryland taxes actually are a bit below the national average. If they say that they will cut taxes, balance the budget and not cut any programs, you are authorized to laugh out loud. Make them tell you what they will really cut. It may well be something that you agree ought to be cut, but there’s no excuse for not being honest about their real agenda.
Which brings me to another piece of dishonest nonsense. Republican candidates are fond of saying that Maryland is ‘not friendly to business’. To back up their remarks, they point to rankings published by The Tax Foundation, which indeed rank Maryland ranks near the bottom (45th) in something they call ‘State Business Tax Climate Index’.
So let’s take a look at this. According to The Tax Foundation, the five most business-friendly states are: South Dakota, Wyoming, Alaska, Nevada and Florida. You would assume that businesses would be flocking to these states, since they have held the top rankings 9with slight shifts) for quite some time. But somehow they are not yet known as centers of corporate power and wealth.
The five least business-friendly states, according to the Tax Foundation, are Iowa, Ohio, California, New York and New Jersey. Upon reflection you may note that, with the exception of Iowa, these states include the largest concentrations of corporate and business activity 9and wealth) in the country.
So what’s going on here? Are business rapidly abandoning the massive urban concentrations of New York, New Jersey and California to partake in the pastoral delights of Wyoming and South Dakota? The short answer is ‘No’. So is the long answer. The reality is that The Tax Foundation creates its rankings not based on what businesses really want, but rather based on their own antipathy to progressive income taxes. States with progressive income taxes always occupy the lowest rankings and states with no income tax or a flat income tax are at the top.
Of course, businesses make their decisions on where to locate based on many factors beside taxes including infrastructure, location, and availability of a productive, skilled and educated workforce. That’s why many businesses have located in Maryand in the past and continue to do so and why Marylanders enjoy some of the highest incomes in the country.
So When your local Republican candidate tells you that Maryland taxes are unfriendly to business, send them to Wyoming. You’ll make Maryland a better state.