The Results of O'Malleynomics

One of the net results of the computer services tax that the Governor and the General Assembly railroaded through the Special Session is that it is becoming more and more attractive for tech businesses to cut bait and leave the state:

In January, just as anger over a new tax on computer services was beginning to boil over in Maryland's high-tech sector, Robert Epstein received a call from the Pennsylvania Department of Community and Economic Development.

"This guy called and said, 'I don't know if you've heard of the computer tax coming on board in Maryland. ... Have you ever thought of opening an office in our state or relocating to our state?'" recalled Epstein, president of About-Web LLC, a 52-employee, information technology firm based in Rockville.

After poring over maps last week with Pennsylvania officials courting his and other companies in Maryland, Epstein said he is thinking of moving a large chunk of his business to York, where employees can serve Baltimore-area clients. He's already committed to investing more resources in an office he has in Virginia.

Other technology executives in Maryland tell similar stories of being approached by officials from neighboring states and by commercial real estate brokers looking to capitalize on widespread discontent in the information technology sector over the new tax.

Of course, anybody with half a brain can understand that when you make the business climate less and less appealing by continuing to raise the cost of business, business leaders are going to do what they have to do in order to continue to keep costs low. If, as in the example above, businesses can serve Baltimore and still relocate to a place like York with lower taxes, they are going to leave much like so many folks who work in Baltimore have moved to the Red Lion and Shrewsbury areas the last fifteen years.

What's amazing is the fact that the O'Malley Administration is completely oblivious to the fact that business might actually take advantage of such economic benefits:

Gov. Martin O'Malley's secretary of economic development, David W. Edgerley, said yesterday that his office is aware that Pennsylvania and Delaware have recently targeted Maryland computer companies. He said he is "monitoring the situation" but does not believe it is widespread.

"It is standard operating procedure behind the scenes to try and take advantage of any opportunity," Edgerley said of states' business development agencies. "I don't think it will be very successful."

I'm not even sure how one could say that logically. Does Secretary Edgerley really believe that businesses are so tied down in Marlyand that it doesn't make economic sense for them to move? This is particularly true of small businesses. It might make more sense that a large operation with a number of sunk costs will not pull up roots and leave quite so quickly. But small businesses, the backbone of our local economy, tend not to have those sunk costs. If they can continue to serve (or even expand) their customer base and save money on the cost of doing business in the process, why wouldn't they?

And reasonable people understand that:

Greater Baltimore Committee head Donald C. Fry said that position betrays a naivete about the uniqueness of the computer services industry: "Whenever the business community raises concerns about taxes and talks about the possibility of leaving, the state government leaders seem to believe that that's just not going to happen because there are other compelling reasons for them to stay."

The computer services tax is different, Fry argues, because the high-tech industry is "much more mobile. ... You don't have to bring in moving vans. You can do it electronically."

The irony of the computer services tax is rich when you consider how much time and effort state and local leaders have spent trying to turn Maryland into a player in the technology field. How many times have they tried to woo businesses to our state in order to create a Tech Corridor in Montgomery County, or try to woo businesses to downtown Baltimore. The administration seems to fail to realize that businesses that could be wooed here can also be driven out of town by decisions that negatively impact their bottom line in such a way that it makes it difficult for them to do business.

When will Maryland Democrats, particularly Governor O'Malley, learn that you cannot tax your way to prosperity?