Here’s another piece in the mounting pile of evidence that what’s going on in Annapolis and Washington just isn’t working. It’s part of a longer piece from the Maryland Senate Republican Caucus; I’m just borrowing a key paragraph:
The (unemployment) problem in Maryland is compounded by the fact that there are fewer private sector employers: “About 139,000 employers were counted by the state Department of Labor, Licensing and Regulation at the end of 2009, the lowest number since 2004. Just as population typically grows, the number of employers opening for business usually outpaces closures, but not last year when a net of 2,900 employers were shuttered, according to the agency.
In other words, the number of businesses which closed up shop or relocated to other states outpaced the number of new businesses or those relocating to Maryland by 2,900. Being familiar with the building and construction industry it wouldn’t surprise me if the lion’s share of these closures weren’t small construction contractors who couldn’t survive a three-year (and counting) downturn in the building industry.
To me, this is the highest priority which needs to be addressed. Unfortunately, the state isn’t lending a helping hand by making most employers pay an artificial prevailing wage for state contract work while both the state and federal governments create a fiscal policy which sucks money out of the private sector and redistributes it to friends through the public sector.
Seemingly the new solution being offered at both the state and federal levels is a one-time tax credit for hiring workers off the unemployment rolls. While the idea of cutting taxes borrows from the conservative’s playbook, there is a difference in the approach which is telling.
First of all, a small tax incentive of $3,000 or $5,000 (depending on plan) only covers a small portion of the salary and benefits of a full-time worker. If a median yearly salary is $40,ooo and average for health insurance is about $13,000 this break covers less than 10 percent of the sunk cost of having an employee for a year. And obviously there has to be work for this employee to do – he or she needs to create production or provide a service which is at least as much as their financial burden and preferably more in order to cover overhead.
Currently the average of hours worked per week in the private sector continues to stumble along near its all-time low of just over 33 hours per week. Granted, the average has only declined by about 0.8 hours from our days of 5% unemployment just two short years ago but this drop is statistically significant because less overtime means less need to hire new workers. On a personal level, my overtime was significant the first year I lived here but declined steadily thereafter – first due to an influx of new hires but then because work dried up. Now we live in the age of furloughs and reduced hours, and that reduction in income eventually creates a stagnation and decline in demand for consumer goods.
The state of Maryland also is begging for federal help to cover its unemployment insurance shortfall, and Fedzilla is only too happy to help – IF Maryland changes some of its laws to better reflect the federal idea of what they should be. In the old days, that was called extortion. I think a better idea would be to repeal the law passed last year allowing part-time workers to receive benefits.
Another idea to bring back capital would be to repeal the so-called “millionaire’s tax” that was put in place in 2008 as a substitute for the ill-advised “tech tax.”
While we’re at it, let’s encourage the utilities to lower their rates by dropping out of the Regional Greenhouse Gas Initiative and repealing the renewable energy portfolio requirements, while allowing them to build new power plants to address Maryland’s growing energy needs. We could even make these laws effective once utilities agree to the rate reduction as incentive for them to follow through.
Obviously there are a number of ways Maryland could work to make itself more amenable to business growth. Supposedly they have the top-ranked schools in the nation and the state lies within the largest concentration of population in the nation as the southern terminus of the Boston to Washington megalopolis, so the market is practically ready-made.
Yet we lost a net of 2,900 business entities last year and our unemployment rate increased at a time when most other states are holding steady or decreasing. If it weren’t for the rapid expansion of Washington, D.C. Maryland might be an economic basket case mentioned in the same breath as California, New York, or Michigan. The official motto of “One Maryland” tends to assume that the whole state works like the I-95 corridor areas do and nothing can be further from the truth – in reality I believe we have at least three Marylands, and only one is showing some semblance of thriving (hint: it ain’t the Eastern Shore.)
I know it’s almost hopeless to ask this edition of the General Assembly for prudent across-the-board tax and regulatory relief, but to me as an armchair economist with some understanding of history that seems to be the ticket to prosperity. States with lower burdens on business tend to attract them while states who, consciously or unconsciously, punish entrepreneurs tend to drive them into the arms of other states.
If the idea of having each state be its own little laboratory of governmental policies is still holding true, I think we can easily figure out that the O’Malley/Democrat formula of tax, spend, and regulate is a noxious brew. It’s time to scrap that experiment and start over with new ingredients proven to work in other states. To do otherwise is to risk falling farther behind in the great economic race.
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