How Will the Coronavirus Outbreak Affect Maryland’s Economy?
As of Monday at 5 pm, Maryland’s restaurants, bars, theaters, gyms, and other non-essential businesses were shut down to prevent the further spread of coronavirus. It is unclear how long these businesses would have to remain closed, but if the crisis is prolonged, the coronavirus pandemic could be the last straw that forces some of Maryland’s small businesses to shut down permanently.
To shed some light, small businesses are the backbone of Maryland’s economy. There are over 580,000 small businesses in Maryland, and they comprise around 99.5 percent of the state’s businesses. They also employ around 1.1 million people. These numbers alone suggest the broad impact on Maryland’s economy that could occur if these enterprises cease operations. According to Andrew Schaufele, director of the Bureau of Revenue Estimates, it is possible that the pandemic will bring a “prolonged, full-blown recession” in Maryland.
Despite this, the Maryland General Assembly is still debating a package of tax hike bills that would both directly and indirectly hurt small businesses. For instance, the proposed “luxury service” tax would cripple cleaning services, interior design firms, jewelry repair shops, and many others. And the proposed digital advertising tax would hurt businesses that use low-cost social media advertising to increase their market share. Such bills, proposed to finance the $32 billion Kirwan education plan, would devastate Maryland’s small businesses that are already struggling due to the pandemic.
Therefore, state comptroller Peter Franchot is urging Maryland legislators to hold off on any tax hikes to pay for the Kirwan plan. “The last thing that Maryland families want or need now, in this heightened period of panic and economic uncertainty, is to see headlines about new tax or fee increases,” Franchot said. He is right: even when Maryland’s restaurants and bars and allowed to reopen, they will need to focus on recovery. They cannot afford to lose even more customers and revenue as a result of new taxes that would make their services more expensive.
Amid the current pandemic and shutdowns, it is also unclear how much tax revenue Maryland will be able to collect. Therefore, lawmakers are attaching an emergency clause that would allow the newly proposed tax revenues to be used for state finances in the first year, in case of a severe economic downturn. While this clause is an attempt to restore some fiscal responsibility, it is not enough. As currently envisioned, the state will still go on to spend billions a year for the Kirwan plan the following year, regardless of the conditions of Maryland’s economy by that time.
As the Maryland Public Policy Institute discussed in the Kirwan: Myth vs. Facts report, the Kirwan recommendations are a set of misguided and expensive suggestions based on the myth that Maryland’s schools are underfunded. In reality, Maryland already spends 22 percent above the national average on a per-pupil basis. Therefore, the current crisis provides an opportunity for Maryland lawmakers to carefully review these myths and reconsider the cost and benefits of the proposed Kirwan plan.
All in all, the coronavirus outbreak highlights the vulnerable position of Maryland’s small businesses, and brings uncertainty to Maryland’s budget and economic outlook. Maryland, ranked 43rd out of 50 states in terms of its business tax climate, is unprepared to deal with a pandemic that could further exacerbate the economic conditions of small business owners. Until the lawmakers reconvene for a special session in May, enough thoughts and consideration should be given on how to help Maryland’s small businesses and economy recover from the crisis.