Not long ago Maryland was regarded as a business friendly state and its steady growth and efficient administration was admirable. Practically every state is now struggling because of the economic decline but the change in Maryland has been especially abrupt. The key reason is the November 2007 enactment of the largest tax increase in its history ($7 billion), and the addition of regulatory burdens on businesses.
Despite the huge tax increase, Maryland has gone from a $1 billion surplus in 2006 to a $1.9 billion deficit in 2009. This is due to significant spending increases, a failure to curtail the growth of government and disappointing revenue from state income taxes. Maryland’s budget is currently $3 billion higher than Pennsylvania’s, and over $1.5 billion higher than Virginia, two states with much higher populations and land territory.
Maryland has experienced a remarkable drop in just one year. In the rankings of the best states to do business, Maryland went from the 24th to the 45th position according to the Tax Foundation. The states rated worse than Maryland are Rhode Island, Ohio, California, New York, and New Jersey, and all of them have experienced huge economic declines as businesses either flee or fail to expand.
According to the “D.C. Examiner’:
“Decades of empirical research prove that economic growth in high-tax states consistently lags behind states with lower tax burdens. The 10 states with the lowest taxes also attracted almost 10 percent more new residents during the last decade than their high-tax counterparts.
“Just last year, 144,000 people fled from California’s punishing taxes, the highest state-to-state migration in the U.S. The ramifications of losing revenue-producing businesses and highly-skilled workers to lower-tax states should by now be apparent even to big-spending governors like Maryland’s Martin O’Malley and California’s Arnold Schwarzenegger – long-term economic decline.”
Most Marylanders live within 45 miles of the state line and can shop elsewhere, including some who enjoy tax-free shopping in Delaware. Many other states have already learned that you cannot tax your way into prosperity. Hiking taxes might provide a spike in revenue in the short term, but over the long haul they devastate an economy.
Michigan ranks as the 12th worst state for business and it has done little to slow the outbound migration of its residents. In fact, they have done the opposite by imposition of additional regulatory burdens.
The neighboring state of Indiana has responded by erecting billboards near the border encouraging Michigan and Illinois residents to, “Come on IN for Lower Taxes, Business and Housing Costs.” The story in all of the high tax states is similar, and their decline has been rapid and astonishing. In the 1960s they were judged to be among the most business-friendly states because of light tax burdens. That helped attract a steady stream of businesses and residents and produced robust economic growth.
The rapid growth of state and local government – whose employment increased by 15 percent from 2000 through 2006 alone in the high tax states – has created a huge public work force not about to vote for eliminating its perks and benefits.
The residents of these states continue to flee and they are doing so at a record rate. The implications are staggering. People are the basis of all economic development. It is people who create, produce, employ, work and generate wealth.
The process of decline is now beginning in Maryland, but it can be reversed. If Maryland restores its business friendly reputation its residents will not be lured by “opportunity states.” During the recent campaign then Senator Joe Biden (D-DE) said it was patriotic to pay higher taxes. Now residents of Maryland can consider themselves as among the most patriotic in the nation.