Shocker: capital leaves a high-tax state

I would have argued for a release which wasn’t on a holiday week – a point I made to spokesman Jim Pettit – but on Tuesday Change Maryland released a fascinating study about the migration of capital from Maryland to other states; a study which also looked at the effect on each of Maryland’s 23 counties and Baltimore City.

In the release, Change Maryland Chair Larry Hogan is quoted as saying:

A growing tax base is the ultimate win/win situation in public policy. It eases the pressure to raise revenues, and conversely, a shrinking tax base often leads to a troublesome tax-and-spend downward spiral as actual revenues fail to meet estimates.

Welcome to Maryland, huh? How many gimmicks has the state tried over the last half-decade or so to address a yawning structural deficit? We were told the tax hikes in 2007 would do the trick, but if that wasn’t the case we would be rolling in dough from all the casinos we would build to keep those Free Staters wagering at home instead of traveling to Delaware or West Virginia to play those one-armed bandits. And so on, and so forth – meanwhile, the state continues to increase spending at a rapid clip, daring revenues to try and keep up in a losing race. The Change Maryland group also has a handy list of the 24 tax and fee increases we have endured since Martin O’Malley came into office inheriting a budget surplus in 2007.

So when I received a preview of this study on Monday, the first thing I naturally gravitated to was how it affected my home county of Wicomico, which has had its own budgetary struggles over the last couple years. Those of the liberal persuasion – a number which includes our County Executive, Rick Pollitt – blame a voter-imposed revenue cap for part of the problem, but a larger issue is the rapid decline of property values that, through property taxes, make up a significant portion of county revenues.

Whatever the reason, the Change Maryland numbers show a stark difference between Wicomico and neighboring counties on the lower Eastern Shore. Using the factors of those coming and leaving, our overall income tax base declined 0.77% while each of the three surrounding counties (Dorchester, Somerset, Worcester) increased at 0.47%, 0.16%, and 2.07% respectively. Worcester’s gain was the largest in the state, with Kent County on the Upper Eastern Shore second at 1.55%.

While the Change Maryland analysis focuses on larger counties, Hogan also had encouraging words for the rural parts of the state:

I’m very encouraged by how well we’re doing in the rural and outlying counties. These small economic engines are powering the state forward by attracting new residents.   Clearly where we need to see improvement is in our largest jurisdictions.  Baltimore City is losing its tax base at unacceptable levels and Montgomery County’s stagnant tax base will further tarnish its business reputation as elected officials seek more revenue to make up for budget shortfalls.

Yet there are three exceptions to that rural/urban rule, as Allegany County in the western panhandle lost quite a bit of its tax base as did Caroline County (also on the Eastern Shore.)

I think the problem can easily be addressed for Allegany County by allowing the extraction of natural gas from the Marcellus Shale which lies underneath; meanwhile, Caroline County is such a small number to almost be an anomaly. However, Caroline is a very rural (and landlocked) county lying somewhat off the beaten path and attracting jobs and residents can be difficult in those cases.

On the other hand, the obvious point Change Maryland is making about the lack of encouragement to business growth is most reinforced by the tax base declines in Baltimore City and County along with the close Washington D.C. suburbs of Montgomery and Prince George’s counties. Their tax base may be shrinking, but combined these entities make up about 60% of Maryland’s roughly 5.8 million residents.

So that leaves poor old Wicomico County, which is flailing just like the big boys. But why?

The liberal and Pollitt argument would go something like this: because our budgets were made artificially tight by the revenue cap, we couldn’t “invest” in quality-of-life aspects of government like education and recreation to attract people to live here. But the key attraction to an area to businesses is generally how receptive the location will be for the bottom line – even though Perdue is located in Wicomico County many of its workers choose to live in other areas for various reasons, whether lower property taxes, better housing or schools, or just liking a place to live enough to make the extra commute worth it.

If you look at the actual Wicomico County numbers, it’s interesting to see that the number of filers declined by just 45, out of a total of over 2,000 on each side – it’s not a statistically significant change. But add in the dependents and the number swells to an outflow of 215. It’s a suggestion that families with kids are leaving the area; naturally those on the Left would quickly indict the lack of spending on schools and quality of life as a culprit.

But the income difference is stark enough to suggest that it’s truly a lack of good job opportunities that is costing Wicomico County – there’s about a $5,000 income differential between those leaving and those coming in. In other words, good-paying jobs are being lost and replaced by ones which aren’t as lucrative. It’s one thing that I wish Change Maryland had included, but instead I did the simple math.

The first number in these upcoming series is the income (in thousands) per filer coming into each county and Baltimore City. The second number is the income (in thousands) shown from outgoing filers, with the third plus-or-minus number being the difference between the two:

  • Allegany: 31.48, 37.73, (-6.25)
  • Anne Arundel: 51.74, 53.22, (-1.48)
  • Baltimore City: 37.81, 43.83, (-6.02)
  • Baltimore County: 42.44, 46.28, (-3.84)
  • Calvert: 57.61, 53.71, +3.90
  • Caroline: 35.12, 31.22, +3.90
  • Carroll: 55.14, 47.76, +7.38
  • Cecil: 45.86, 45.53, +0.33
  • Charles: 48.52, 48.89, (-0.37)
  • Dorchester: 34.13, 35.40, (-1.27)
  • Frederick: 53.55, 50.64, +2.91
  • Garrett: 48.45, 32.48, +15.97
  • Harford: 52.17, 48.51, +3.66
  • Howard: 61.39, 59.05, +2.34
  • Kent: 48.79, 36.24, +12.55
  • Montgomery: 58.62, 59.00, (-0.38)
  • Prince George’s: 40.18, 40.85, (-0.67)
  • Queen Anne’s: 58.41, 49.64, +8.77
  • St. Mary’s: 50.51, 49.36, +1.15
  • Somerset: 26.74, 27.00, (-0.26)
  • Talbot: 53.00, 46.96, +6.04
  • Washington: 39.12, 38.59, +0.53
  • Wicomico: 31.44, 36.88, (-5.44)
  • Worcester: 49.67, 34.53, +15.14

Looking at the numbers through this lens, you can see that Wicomico is right there with Baltimore City and Allegany County in bleeding good-paying jobs and attracting what might be considered the working poor. Oddly enough, both Wicomico and Allegany border the two best performers on this particular comparison as both Garrett and Worcester counties are attracting new and much more affluent tax filers.

My theory on this stark differential is that these wealthier newcomers are retirees who wish to live out their years by the beach or up in the mountains, not necessarily those drawn because of good-paying jobs. A combination of retirees and people who wish to live in more rural areas, perceiving a better quality of life there, and don’t mind a long daily commute might explain the success of Eastern Shore counties like Kent, Queen Anne’s, Talbot, and perhaps even Caroline.

And then there’s the group that simply threw up their hands and moved out of the state entirely. The Change Maryland study points out Virginia was a major beneficiary of Maryland’s losses, which makes sense considering those who work in Washington D.C. can just as readily commute from Virginia as they can from Maryland. Dan Bongino – who’s familiar with working in Washington as a former Secret Service agent protecting the President –  has mentioned the fact that many considered him “crazy” for selecting Maryland over Virginia when he moved here from New York (because of the tax burden) on the campaign trail. But “I saw Maryland first and I fell in love with it,” said Dan.

Unfortunately, there are too many other pragmatic thinkers who may love Maryland but are deciding to vote with their feet and depart for greener financial pastures. It will be the job of those like Hogan and Bongino to shake up the state and place it back in a positive direction for job growth by encouraging business investment instead of considering wealthy people cash cows to milk until these producers crumple over from exhaustion.

7 thoughts on “Shocker: capital leaves a high-tax state”

  1. You are 100% dead on with your theory behind the increase rate of Garrett County. With Garrett having one of the lowest median household incomes in MD, you do not move here for the money – but likely for quality of life. 12 years ago my wife and I (being in our mid 40s) and our 16 year old son, relocated to the beautiful mountains of Garrett Co. for the same reason. Financially, my wife and I lost over $40,000 in annual wages for comparable jobs which we have never been able to recoup. On the other hand, our son’s new high school had less total students than he would have had in his junior class alone in his previous AAAA high school he attended. After high school graduation, he was able to attend 2 year Garrett College free of charge like all other Garrett County graduates. He continued his education at the top of his class with a business financial degree at nearby Frostburg University, but has relocated back to PA where he can make a better income.

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