Taxes matter. Don’t think so? Take a look at what occurred recently in Connecticut. General Electric announced that it is moving to Massachusetts, mainly because of taxes. Connecticut has been increasing corporate and individual taxes, but Massachusetts reduced some rates.
Massachusetts has shown a willingness to offer incentives to attract companies, but it also knows that it can afford to be a bit higher in taxes than some other states because it provides a skilled workforce and an appealing environment for younger, technology-oriented employees.
Now, a large Maryland employer is testing the waters to determine whether it will keep its headquarters in Maryland. Marriott’s Bethesda headquarters employs about 2,000 people. Marriott recently announced it would acquire Starwood Hotels, which is (ironically) headquartered in Stamford, Conn. Connecticut probably will again lose another large company and the jobs associated with it. This merger could be good for Maryland’s economy. It certainly makes retaining Marriott more important.
But Martin O’Malley’s (D) years as governor were devastating to Maryland’s business-friendly reputation. More than 80 tax, license and fee increases accelerated an outmigration of businesses from the state. In a 2014 Gallup survey, Maryland ranked immediately behind Connecticut as a state people would flee if they could. Forty-seven percent of people stated that they wanted to leave Maryland. Maryland residents also had among the least amount of pride in their state. Survey factors that caused people to feel this way included a low trust in their state government, a poor business climate with limited job opportunities and resentment about the amount they paid in state taxes. These factors highlight the state’s challenges in retaining Marriott.
The good news for Maryland is that Gov. Larry Hogan (R) has hung out the “open for business” sign, helping the state improve its image and job climate.
Marriott’s roots have been here for years. But what will it take to keep it here?
Maryland competes most directly against Virginia, the District and Delaware for employment opportunities. Most of the competition for Marriott’s retention would come from Northern Virginia.
How do the two states compare tax-wise? Maryland imposes an 8.25 percent tax on corporate profits; Virginia’s is 6 percent. A corporation with $100 million in earnings would pay $2.25 million more in taxes to Maryland. Employees would have less take-home pay because Maryland localities impose an average 3 percent income tax. Virginia does not have a local tax.
Each year Maryland’s legislature proposes a series of bad-for-business bills that ultimately worsen the state’s business-climate reputation. These do nothing but make it more difficult for Hogan to broadcast his message that Maryland is indeed open for business. Fortunately, last year he vetoed several bills that would hurt businesses economically and has offered some modest bipartisan-friendly tax cuts in his new budget. That will help his plea to Marriott.
Maryland has positive momentum, however. Maryland’s job growth was greater than Virginia’s in the past year, according to the Washington Business Journal. While Marriott’s retention is not impossible, it will take a combination of tax abatements and incentives for this to happen.
Word has it that Massachusetts kicked in about $145 million in incentives to recruit GE. Given that Marriott already has strong ties to Maryland, it may not take that much to keep the company. Can the legislature cease its destructive economic programs and regulations long enough for the governor to sell his package and retain this long-standing state employer? If it can’t, Maryland may in fact become the next Connecticut.
The writer is a member of the Maryland Taxpayers Association board of directors.