It’s only one survey of 280 small (perhaps micro-scale) businesses in Maryland, but a recent poll conducted by a company which should be familiar to regular readers calls into question the effectiveness of Larry Hogan’s efforts at improvement in Maryland’s business climate in his first few months in office.
In cooperation with the Kauffman Foundation, Thumbtack.com has done annual, quarterly, and now monthly surveys of small business sentiment around the country. (I’ve written about their surveys on business friendliness in the past.) While it comes in a more graphical form than I can readily share here, some items I gleaned from the most recent Maryland and national data follow:
- In terms of revenue and overall financial outlooks, Maryland businesses are less positive than the rest of the nation in the former and fall right at the national mean for the latter. The good news, though, is that over 70% of these businesses have a positive outlook over the next quarter.
- Less than half, however, rate their financial situation as “very good” or “somewhat good.” Maryland’s total is 45.9% compared to 48.1% nationwide.
- Maryland businesses are more pessimistic about profitability than their national peers; still, over 60% think they will do better. On the other hand, their perception on business conditions is actually better than the national average – 53.4% in Maryland think they will be better in three months’ time, while only 51.9% nationally share that outlook.
- Finally, 24% of Maryland micro-businesses anticipate hiring over the next three months, while just 22.1% do nationwide. But while only 2.1% of businesses nationwide thought they would need to furlough workers, that percentage was 2.5% in Maryland.
As I noted above, this data was compiled at different intervals. Until March, this was done as a quarterly survey; now it is monthly. But one asset of this approach is that I can go back to the beginning of the year, and in their release accompanying the information Thumbtack.com noted:
In June, respondents nationwide indicated reduced optimism about the economy for the third month in a row, though sentiment about current and future conditions continues to be higher than that reported one year ago.
Key findings for Maryland include:
- Maryland small businesses reported a sharp decline across each of the metrics tracked by Thumbtack, with the strongest declines coming in their expectations about future financial conditions and the economy.
- Maryland experienced one of the largest overall business sentiment declines in the country in June; the state is now below the regional and national averages for small-business sentiment and ranks 30th overall nationwide.
- Sentiment is still higher than it was one year ago, reflecting a broad-based increase in perceptions of economic conditions by small businesses across the country.
- For the second month in a row, small businesses nationally expressed increasing pessimism about future economic conditions, which have been the largest contributors to the decline in overall sentiment.
Thus, it sounds like Maryland is reflective of a national trend.
But it’s also worth noting that the 2015Q1 survey showed broadly higher numbers across the board – revenue outlook has declined 10.9 points, financial outlook 5.2 points, profitability 11 points, and business conditions 8 points.
In addition, those who thought they may be hiring declined from 26% to 24.1%. Only the respondents’ assessment of their financial condition stayed relatively unchanged, declining just 1/10 of a point.
Unfortunately, these were the types of numbers we came to expect in the O’Malley administration. Obviously Hogan apologists would argue that their guy has been in office less than six months and it takes time to turn the ship of state around. And they would be correct, as the Augustine Commission agenda sailed through the General Assembly with its effective date in October.
Yet to me much of that was a simple rearrangement of deck chairs on the Titanic. While we can’t do a whole lot about the national economic climate, one thing Maryland could have done was allow these entrepreneurs to keep a little more of their money by reducing personal income tax rates; meanwhile, they could accommodate the entire elimination of corporate taxes with modest budget cuts of 3% or less. (The corporate tax brings in just over $1 billion of a $40 billion budget.) This would encourage larger businesses to consider Maryland for their growth and create more spinoff work for these micro-businesses.
Think of it this way under my scenario – Justin relocates from New York to work at the new Maryland corporate headquarters of XYZ Company, which was attracted here by the zero corporate tax rate as well as the other benefits Maryland brings. He needs a guy to fix his laptop, someone to watch the kids while Justin and Mrs. Justin are at work, and so on and so forth. Imagine what 250 Justins can do for a community and how many extra jobs they create. (I’m sure someone somewhere has done a study on this but today I’ll work without a net.)
The point is that addressing regulation and red tape is great, but the financial incentive has to be there as well. Among states with flat corporate tax rates, Maryland ranks among the highest. On a personal income level, Maryland’s rates appear to be a little better but that doesn’t add in the local county tax. (Granted, other states may also have the same practice.)
Let’s just say this: with an agenda that includes financial incentives as well as some cooperation from thoughtful Democrats in the Maryland General Assembly, by this time next year we can have a far more optimistic business community and in a few months after that they can better enjoy the results of hard work because the state takes a smaller cut.