Del. Jennings Proposes Legislation to Increase Maryland’s Competiveness

From the office of Del. J.B. Jennings:

Delegate J.B. Jennings (R-7th Legislative District) is pleased to announce that he has re-introduced legislation to the Maryland General Assembly that would reduce the state’s sales tax from 6% to 5%.

During the ‘2007’ Special Session, the Maryland General Assembly voted to increase the state’s sales tax from 5% to 6%. Under Governor O’Malley’s Tax Reform Legislation, he claimed to modernize Maryland’s sales tax by increasing it from the current 5% to 6%. According to the Governor, Maryland ranked 42nd in the nation for the lowest sales tax rate. He believed that increasing Maryland’s sales tax to 6% would have kept the state competitive with surrounding states and generate additional state revenue.

Despite heavy opposition that the increase would actually reduce state revenue and have negative fiscal effects on small business from Republican legislators, including Delegate Jennings, the Administration pushed for the tax increase.

In ‘2008’, the state Comptroller’s office estimated that increasing the state’s sale tax by one (1%) percent would add an additional $377 million to the general fund. At the end of the year the Comptroller’s office revised its estimate for fiscal year ‘2009’, revealing a $415 million shortfall and a $1.9 billion shortfall next year for fiscal year ‘2010’, assuming spending grows at 0.7%. Most alarmingly, revenue from the ‘2008’ tax increases ran 44% under projection, suggesting a loss of economic activity from the increases. Specifically in regards to the sales tax, State Comptroller Peter Franchot noted in the estimate: In fiscal year ‘2009’, sales tax receipts are projected to fall 3.5% after adjusting for the rate increase from 5% to 6% and other law changes, with all major components of the sales tax declining, except for receipts from utilities. Baseline revenues are projected to decline 0.1% in fiscal year ‘2010’.

This tax increase has had a crippling effect on small business causing either business to close or relocate to surrounding states that have a better business tax climate than Maryland. According to the Tax Foundation’s 2010 State Business Tax Climate Index, Maryland ranks 45th overall in the United States as the worst business climate states – the only other states that fall below Maryland are: Iowa (46th), Ohio (47th), California (48th), New York (49th), and New Jersey (50th). In comparison to Maryland’s neighboring states such as Delaware (8th), Pennsylvania (27th), and Virginia (15th) further exacerbates Maryland’s overall business competitiveness.

Delegate Jennings stated, a reduction in sales tax can serve as a possible first step toward improving the state’s business tax climate. As we come out of the recession, repealing the 20% tax hike would result in a rise in Maryland’s State Business Tax Climate Index score from 45th to 43rd and probably lose less revenue than expected.

He avers, “As a state legislator, I believe we must take affirmative steps to reduce the tax burden on Maryland’s working families and small businesses. Last year alone, Maryland lost 44,000 jobs. By reducing the state’s sales tax, represents an affirmative step that we will lead to significant job growth and improve our state’s horrendous business climate that has driven away so many other potential employers.”

House Bill 1286 was heard on Thursday, March 25, 2010 before the House Ways and Means Standing Committee.