ROCKVILLE, MD (December 17, 2015)  - A new study reveals that Maryland’s high corporate income tax rate (CIT) disproportionately impacts small businesses and may actually cost the State tax revenue.  The study from the Maryland Public Policy Institute indicates that lowering Maryland’s rate to 6 percent from 8.25 percent would improve the state’s economic competitiveness, bolster small businesses and likely increase Maryland’s tax revenue over the long term.  The full study can be viewed online at mdpolicy.org.

“Maryland’s corporate income tax rate is one of the most daunting obstacles to economic growth in our state,” said Christopher B. Summers, president of the Institute.  “With the General Assembly scheduled to convene in less than a month, policy makers must confront how Maryland’s CIT slows economic growth in our communities and damages our reputation in the eyes of employers around the country.”  

The study, conducted by award-winning economists Pavel Yakovlev, Ph.D. and Kanybek Nur-tegin, Ph.D., includes the following findings:

•  The average CIT among U.S. states is 5.89 percent, considerably lower than Maryland’s rate; 
  
  

•  Reducing Maryland’s CIT to 6 percent may increase real per capita corporate income tax revenue by approximately 7.4 percent, if everything else remains the same;
  
  

•  Large firms are better positioned than smaller firms to take advantage of tax avoidance schemes.  Because capital is more mobile in larger firms, smaller firms are less capable of escaping to lower-tax jurisdictions;
  
  

•  Lowering Maryland’s CIT to 6 percent would increase long-term corporate investment and employment in Maryland without jeopardizing government finances since the tax amounts to only about 2.6 percent of the state’s total revenue;
  
  

•  When Maryland raised its corporate rate from 7 to 8.25 percent in 2008, its corporate tax revenue fell that year by about 10 percent or $70 million in inflation-adjusted dollars, according to Maryland Comptroller’s Office; 
  
  

•   The desired effects of this tax reform are more likely to be seen in the long term. In the short term a tax reduction may even lead to revenue losses as it takes time for incentives to affect behavior;
  
  

•  The average state CIT rate fell from 6.09 percent in 2002 to 5.72 percent in 2015. Meanwhile, Maryland’s already comparatively high SCIT rate of 7 percent rose to 8.25 percent, and;
  
  

•  When combined with the federal corporate income tax, Maryland’s businesses are subject to the top statutory rate of about 40 percent, which places the state at the 99.3^rd percentile internationally.

Dr. Yakovlev is Associate Professor of Economics at Duquesne University’s Palumbo Donahue School of Business.  Dr. Nur-tegin is Associate Professor of Economics at Florida Atlantic University’s Harriet L. Wilkes Honors College.

About the Maryland Public Policy Institute: Founded in 2001, the Maryland Public Policy Institute is a nonpartisan public policy research and education organization that focuses on state policy issues. The Institute’s mission is to formulate and promote public policies at all levels of government based on principles of free enterprise, limited government, and civil society.  Learn more at mdpolicy.org.

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