Want to Really Stimulate Jobs? Then Cut Corporate Taxes!
Governor Martin O’Malley heralded his job creation package on March 25th at a bill signing in Annapolis. Proclaiming that his administration was all about creating jobs, he signed the Senate Bill 106 – Job Creation and Recovery Tax Credit that provides for a $5000 tax credit to Maryland employers who hire the unemployed. Under O’Malley’s budget proposal, this could lead to the creation of 4000 jobs if fully implemented.
In his press release, O’Malley stated: ““Progress requires that we focus the energies of this legislative session on creating jobs, saving jobs, and protecting jobs. To rebuild and restore our economy, we must help our businesses create and save jobs, and improve the conditions under which business can create or save jobs.”
Unfortunately, the Bureau of Labor Statistics released new job loss figures the next day. The number of O’Malley’s new jobs (4000) pales in comparison to the 13,800 Maryland jobs lost just in the month of February. Maryland was fifth worst in the country for job losses in February.
Piling on to O’Malley’s hollow promises about job creation was the announcement by BP Solar in Frederick on March 26th that they are closing their Maryland solar panel production plant and eliminating 320 manufacturing positions.
Four years ago, Maryland’s unemployment rate was 3.5%. Under O’Malley’s tenure, it rose .2% last month to 7.7%. While the recession has been a key to job losses, Maryland’s deteriorating business climate has stymied the state’s recovery.
What O’Malley should be signing to create jobs is legislation to lower Maryland’s corporate tax rate. Testimony for Senate Bill 773 introduced by Senators Alex Mooney and Richard Colburn support lower corporate tax rates as a means to stimulate economic growth and attract new businesses to the state.
Instead of lowering corporate taxes, O’Malley raised the corporate rate as part of his historic tax increases during the 2007 special session. It is just another example of misguided policy from O’Malley that contributes to Maryland’s poor business climate. In the last four years, Maryland has plummeted from 24th to 45th on the list of business-friendly states.
The following testimony demonstrates how Maryland fails to compete with neighboring states because O’Malley clings to high-tax policies as the cornerstone of his budgetary program.
TESTIMONY OF
JONATHAN WILLIAMS
AMERICAN LEGISLATIVE EXCHANGE COUNCIL
MARYLAND SENATE COMMITTEE ON BUDGET AND TAXATION
MARCH 9, 2010
Mr. Chairman and Members of the Committee, thank you for the opportunity to testify in support of Senate Bill 773. By way of background, I serve as the Director of the American Legislative Exchange Council (ALEC)’s Tax and Fiscal Policy Task Force. As you may know, ALEC is the nation’s largest nonpartisan membership organization of state legislators with nearly 2,000 members across the country. As Task Force Director, I work with our members to develop common-sense policies that reduce wasteful government spending and protect taxpayers.
Along with Dr. Arthur Laffer and Steve Moore from the Wall St. Journal, I co-authored Rich States, Poor States: The 2009 ALEC-Laffer State Economic Competitiveness Index. This publication outlines the inverse relationship between state taxes and state economic performance. In the book, we compare the economic performance of the 10 states with the most competitive corporate tax rates (Nevada, South Dakota and Wyoming do not levy a corporate income tax at all) with the 10 states that have the highest corporate taxes. I thought this committee would be interested to see the results.
Over the past decade, the 10 states with the lowest state corporate income tax rates had nearly 18 percent job growth, compared to 8 percent for the 10 states with the highest corporate income tax states. In addition, personal income grew by more than 82 percent in the low-corporate-income tax states, versus less than 58 percent in the high income tax states. Finally, states with competitive corporate tax policies saw their populations grow twice as fast as states with high corporate taxes. People do indeed vote with their feet.
In the context of a global economy, states must find ways to increase their competitiveness. The top combined federal and state corporate tax rate is higher in Maryland than almost anywhere else in the world. Meanwhile, Virginia, your neighbor to the South, offers low corporate tax rates, which is attracting businesses to relocate to Virginia.
After seeing the economic success of Boeing’s recently opened assembly line in Charleston, SC, House Speaker Bobby Harrell pointed out, “Our state’s future hinges on the strength of our economy and the private sector’s ability to grow and create jobs.” In fact, this week, the South Carolina House voted to eliminate their corporate income tax in an effort to rebuild their state’s economy. This will send a clear message to businesses looking to move or expand: South Carolina is open for business.
Now more than ever, Maryland must find ways to attract businesses to foster economic growth and job creation. Senate Bill 773 is an important piece of legislation, which would create much-needed economic development by giving Maryland the ability to compete with states like Virginia and South Carolina.