Friday, September 6, 2013

Maryland Businesses Seek "Simpson-Bowles-like" Commission

Yesterday, drew attention to a recent report by the Greater Baltimore Committee regarding Maryland's business climate and regional competitiveness, noting a series of proposals by the GBC to improve the local economy.  Reviewing the underlying report (PDF), you may be surprised to see that the report fails to request a single tax cut.  Instead, the Committee members emphasize the need for "strategic, but not-fiscally-debilitating, revenue-neutral adjustments to Maryland's tax structure, coupled with strengthened efficiency in government spending."

If you've followed the debate in Congress regarding taxes, you may be a little skeptical of the term "revenue-neutral".  Many of those who use the term premise their solutions on assumptions about growth that make drastic tax cuts "revenue neutral" only in the context of a predicted boom-time response.  But that's not what the GBC is proposing.

Rather, the Committee recommends a study "modeled after the concept of the President's National Commission on Fiscal Responsibility and Reform, better known as the Simpson-Bowles Commission."  Notably, Simpson-Bowles was focused on deficit reduction, not necessarily tax reform, but this proposal seems focused on pulling together key legislators, giving them a premise of "revenue-neutral reforms", and asking them to make the tax code more predictable, cohesive, and fair.

The examples used by the Committee are instructive.  They specifically call out the "state's personal income tax rates, as applied to small business entities including sole proprietorships, Sub-chapter S corporations, LLCs and other business entities whose earnings are 'passed through' on the income tax returns of individuals owning the businesses."  I think what is left unstated in this report, but alluded to in supportive citations, is that relief for income taxes may come through balancing of the corporate and sales taxes, both of which are lower than some of our neighboring jurisdictions.  Unfortunately, the report does not close that loop, and leaves out the proposed solution for decreasing taxation on pass-through income in a revenue-neutral way.

Another interesting read on this report is that while tax reform is the highest priority, a significant amount of space is dedicated to government spending in infrastructure, education, and public-private investment.  I think this is where actual business leaders and their "advocates" get their signals crossed.  While it is popular to say businesses and high-income earners are fleeing the State, there are many attractive aspects of this jurisdiction that bring new companies in and encourage HIE's to stay.  The GBC highlights those topics in their report and seek further investment to make those assets even more attractive.

As an add-on to this week's discussion about the minimum wage, there was an article in yesterday's Baltimore Sun quoting Senate President Mike Miller as saying that an increase in Maryland's minimum wage is likely and that it will probably be tied to corporate tax cuts.  I would respectfully suggest that the GBC has provided a much more important priority in their emphasis on cuts to pass-through earnings on small businesses, who often have the smallest margins, and will be hurt most directly by any across the board increase in the minimum wage.  Adjusting the income tax takes more tinkering and has a much greater danger for unintended consequences, but is also the most reasonable avenue for progressive tax cuts that help the middle class over out-of-state corporations.

A good place to start may be forming that Commission.

That's all for today.  Have a great Friday doing what you love!  It's impossible not to.