Donald Fry: Bad timing for upcoming business tax report

By Donald C. Fry

The Maryland Business Tax Reform Commission is nearing the completion of two years of work reviewing the way our state taxes businesses. This fall members of the commission will formulate its report to the General Assembly, which is due by December 15.

Having been asked specifically to review and evaluate whether Maryland should move its corporate tax structure to a “combined reporting” method, most observers consider it likely that the panel will recommend passage by the General Assembly of some form of combined reporting legislation.

Combined reporting requires corporations to include, in its tax computations, business activities of corporate affiliates outside the state.

The commission has also been asked to review and evaluate the potential elimination of “ineffective tax policies intended as development incentives.” In other words, the commission has been asked to look at Maryland’s business tax incentives and find some to eliminate.

Based on information posted on the commission’s web site, it appears that the commission is, among other things, considering recommending some form of legislation to measure the effectiveness of Maryland’s business tax credits.

Whatever the commission’s recommendations turn out to be, the timing couldn’t be worse for a report advocating for the potential imposition of more taxes on Maryland businesses and for our state’s elected leaders to work toward reducing tax incentives that nurture economic development.

Maryland is beginning to emerge from a recession that has ravaged our economy and it’s pretty clear that the private sector, which drives not only our state’s economy but also government revenues, is not yet out of the woods.

New jobs created by private-sector employers in Maryland have yet to exceed the number of jobs lost, according to fourth-quarter 2009 data released this week by the U.S. Bureau of Labor Statistics. Maryland private-sector job losses have slowed significantly since 2008, but the creation of new jobs remains sluggish.

While Maryland’s job creation numbers could improve in 2010, it nevertheless seems hardly the time to impose more tax overhead on a business sector that continues to struggle to gain economic traction to pull out of the recession.

As for studying ways to potentially reduce business tax credits and other economic development incentives, I urge lawmakers to consider this:

The largest amount of total business tax credits claimed by corporations and individuals in any of the three years studied by the tax reform commission was $45.6 million, which was claimed in FY 2006, according to state data. That sum of credits amounted to less than one-quarter-of-one-percent – specifically 0.232 percent – of state funds spent that year.

Focusing on a miniscule sum of tax credits is like studying a very small grove of trees instead of the forest.

Given that the recession has emphatically demonstrated that business growth and job creation are the bedrock foundations of a healthy economy, it would seem more prudent to study ways to expand effective business tax credits and encourage business growth and expansion rather than cut incentives.

It’s critically important that our state’s elected leaders view business as a respected partner that fuels the economy rather than as an adversary.

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