A recent study ranks Virginia as the nation’s 12th-most business-friendly state and puts Maryland at 36th, adding more fuel to an economic rivalry between the neighboring states that has been defined largely by the debate over whether Virginia’s lower tax rates make it a better place to do business.
The Vienna-based Small Business and Entrepreneurship Council’s study released this month ranks states’ business climates based largely on their tax rates, with some attention paid to factors such as health care and energy costs, crime rates and union presence.
The group concluded that while many people pay attention to federal regulations and their impact on business, state policies often play a larger role.
“Quite simply, policy decisions matter when it comes to making business and investment decisions,” said Raymond J. Keating, the SBE Council’s chief economist and author of the study. “Entrepreneurs and investors understand this fact of economic life. But it’s hit or miss with elected officials.”
The council, which is typically right-leaning on fiscal issues, took a decidedly conservative approach to rating the states, rewarding those that have lower tax rates and penalizing those that impose heavier regulations on business owners in such forms as employee health care mandates, high workers’ compensation rates and minimum wages above the federal level.
Virginia ranked 12th largely because of its reputation for offering more business incentives and fewer regulations than other states. The Old Dominion ranked first in overall regulatory environment in a survey this month by Forbes.
“Smart regulatory reform will produce a freer and better environment for citizens and businesses, and allow the private sector to continue creating jobs and opportunities in the commonwealth,” Gov. Bob McDonnell, a Republican, said in response.
South Dakota rated as the study’s most business-friendly state, followed by Nevada, Texas, Wyoming and Florida, none of which has a tax on personal income or capital gains. Of the five, only Florida has a corporate income tax.
The least business-friendly state was California — which has the highest maximum income and capital gains tax rates in the country — followed by New Jersey, Vermont, New York and Maine.
While fiscal conservatives generally view regulations and taxes as detrimental to business, Democrats have long argued that states with higher tax rates can spend more money on public programs and infrastructure upkeep, which can improve a state’s quality of life and attract business owners and a stronger work force.
In Maryland, where much of the state’s work force is employed by the federal government and its contractors, Democratic officials contend that they are doing things the right way but have suggested that they could do more to attract business.
State Senate Budget and Taxation Committee Chairman Edward J. Kasemeyer, Baltimore County Democrat, said during a Maryland Chamber of Commerce roundtable last month that he would be open to lowering the state’s maximum corporate tax from its current perch at 8.25 percent, which is the 16th-highest in the country.
Delegate Sheila E. Hixson, Montgomery Democrat and chairwoman of the House Ways and Means Committee, acknowledged that the state has been hurt at times by its anti-business perception.
“Sometimes in the state legislature we get accused of not being business-friendly,” she said, as reported by MarylandReporter.com. “But there is a sense that we want everybody working together at this point in time to help [business owners].”