Before the Maryland General Assembly’s session started in mid-January, Kathleen Snyder, CEO of the Maryland Chamber of Commerce, and other business leaders called for more emphasis on improving the state’s business climate and growing private jobs in the face of federal budget cuts affecting many contractors.
The calls were heard by House Speaker Michael E. Busch (D-Dist. 30) of Annapolis, who has formed a House Business Climate Workgroup to recommend strategies to grow the private sector.
“As the state’s economy begins to rebound from the global recession, we have new opportunities to use state policies to leverage private sector participation in Maryland’s economy,” Busch, who could not be reached for comment, said in a statement. “We need to look at what other states are doing, learn from our private-sector partners and do a better job of marketing Maryland as supportive of entrepreneurship and the business community.”
The new group is charged with issuing both short-‐and long-term recommendations to House leaders around issues such as employment sectors that are ripe for investment and innovation; financing mechanisms to stimulate development; streamlining regulations; and marketing the state.
Dels. John L. Bohanan Jr. (D-Dist. 29B) of California and Galen R. Clagett (D-Dist. 3A) of Frederick are co-chairmen of the 10-member group. There are no private-sector representatives, according to a news release.
Maryland created more than 30,000 net private jobs last year, according to federal figures, but its rate for private-sector job creation in 2012 of 1.5 percent was still a little below the national average of 1.7 percent.
Some business leaders say lawmakers can improve the state’s business climate by cutting its corporate income tax rate from 8.25 percent to 6 percent and reducing income tax rates for those with pass-through entities such as S corporations and limited liability companies to 2.875 percent on the state level and 1.6 percent on the county level.
The latter measure would be particularly helpful for small companies, Ellen Valentino, state director of the National Federation of Independent Business, said in a recent hearing before the Senate Budget and Taxation Committee.
“It’s very common for small businesses to be set up as a pass-through entity,” Valentino said. “If there is an opportunity to look at these entities in a different light, it may make sense, particularly if you’re trying to pump some revenues into these small businesses.”
Pass-through entities are taxed no differently from individuals with high earnings “when it is clear that they are a unique segment of the tax base that requires smart policies to ensure that they are able to thrive in our competitive markets,” Donald C. Fry, president and CEO of the Greater Baltimore Committee, said at the hearing.
Fry said his organization fully supported the creation of the new business climate group.
“It’s an issue we have worked on for a number of years,” he said.
Fry said he did not believe business members would be on the panel, but he was “sure they would call upon businesspeople as needed.”
Reducing the pass-through and corporate tax rates is important to get Maryland on a level playing field with Virginia and other states, said Sen. David R. Brinkley (R-Dist. 4) of New Market, who authored legislation to reduce the rates for corporate income taxes and pass-through entities, during the hearing. Virginia has a corporate tax rate of 6 percent, while North Carolina’s is 6.9 percent, and officials are considering a reduction there, he said.
If the pass-through entities tax cut is enacted as written, state coffers would lose $370 million annually and local governments would see $212 million less a year, according to a state legislative analysis. Reducing the corporate income tax rate to 6 percent would cut state funds by $381 million in fiscal 2014 and $313 million in fiscal 2015, according to another analysis.
The Maryland chamber supports Brinkley’s bill to lower the corporate income rate, even if it just a graduated decline over a period of years.
“Certain public policy areas, such as the corporate income tax, consistently impact our competitiveness and lower our ability to create more business investment and private sector jobs,” chamber officials said in a position statement.
The House Ways and Means Committee is scheduled to consider a bill to reduce the corporate tax rate to 6 percent at 1 p.m. Feb. 26. A House companion bill on the pass-through entities had not been filed, as of mid-afternoon Thursday.
The deadline to introduce a bill this session is late Thursday, but bills introduced after the deadline can be referred to the House Rules and Executive Nominations Committee.