Policy groups say Maryland officials should eliminate ineffective tax incentives to help solve the state’s budget shortfall caused by the COVID-19 pandemic.
In a May 13 blog post, Carol Park, senior policy analyst at free-market think tank Maryland Public Policy Institute, wrote that “in order to plug the state’s growing budget hole, officials must quickly identify and say goodbye to a long list of spending programs that are wasteful and unfair.”
“Maryland should eliminate targeted tax incentives that do not actually lead to economic development and should stop handing out money to corporate giants,” Park said.
The state Bureau of Revenue Estimates has projected that in a worst-case scenario, the state could face a $1.1 billion shortfall in the current fiscal year and a $2.6 billion deficit in fiscal 2021, which could become a nearly $4 billion shortfall by fiscal 2022.
According to Park, Maryland’s film producer tax credit is an example of a tax incentive that should be eliminated because it provides a small return on investment. "Giving out $62 million to [Marriott] International and $37.5 million to Northrop Grumman are examples of welfare spending that should never be repeated," she said.
Park told Tax Notes May 19 that she generally believes tax credits that are effective at creating jobs — such as the state’s Job Creation Tax Credit or Businesses That Create New Jobs Tax Credit — should remain in place.
“That said, the state auditors should regularly evaluate how effective these tax credits are and, if needed, modify these programs to ensure that the desired effects are actually being achieved,” Park said.
Benjamin Orr, executive director of the progressive Maryland Center on Economic Policy, told Tax Notes May 19, “We also believe that ineffective tax credits and other subsidies ought to be eliminated.”
“Quite often the state or local governments create tax credits that are supposed to create jobs but in fact do nothing of the sort, or do so at such a high cost that, frankly, the state or local government would be better served to hire people directly rather than create a tax credit,” Orr said.
However, the groups differ on which credits should be removed.
In a 2019 paper, the Maryland Center on Economic Policy called for eliminating five tax credits: the enterprise zone tax credit, the film production activity tax credit, the biotechnology investment incentive tax credit, the Businesses that Create New Jobs tax credit, and the One Maryland Economic Development tax credit.
Orr said that before reducing spending, policymakers should consider eliminating ineffective tax credits and corporate subsidies, using state emergency funds, using federal aid that may come in the next coronavirus relief package, and raising revenue on wealthy taxpayers to address budget gaps.