Mobility Matters

By May 19, 2009Taxation

Millionaire taxes, income tax surcharges, temporary tax increases, etc. What behavior do they spur?

Tax Foundation, “Maryland Wonders: Where’d the Millionaires Go?

The evidence on both sides has primarily been anecdotal, focusing on California and New Jersey, which have had the taxes the longest. Now anecdotal evidence is coming in from Maryland, which imposed its new tax brackets in 2008. On May 13, Maryland Comptroller Peter Franchot (D) wrote in a letter that the number of tax returns reporting income over $1 million has dropped by a third. More to the point, revenue from those earners has dropped by $100 million.

Then again, no reason to be an elitist about it. From Marta Mossburg, Washington Examiner, “It’s not just millionaires fleeing Maryland taxes.

Maryland’s “millionaires’ tax” flopped. It was doomed from the start.

Anyone taking Economics 101 could have predicted that those best able to avoid Maryland’s new 6.25 percent marginal tax rate on income over $1 million would. They are the ones best able to choose where to live and to pay accountants and lawyers to lower their tax burden.

Market losses no doubt contributed to one-third fewer people filing taxes in that income bracket in Maryland by April 15, as supporters of the legislation say. So did those filing extensions. But they and the Republicans yelling “I told you so” miss a bigger issue: Everyone is leaving Maryland, not just the rich.

NAM President John Engler often makes the point that in years past — think the ’90s — states were in a struggle with one another over recruiting businesses and employers, frequently citing their competitive tax structures (or incentives) to woo major companies. Now, that recruiting struggle is international, with nations going after employers with the same arguments about competitive tax structures.

NAM news release, May 4, “NAM Calls New Taxes on Corporate Foreign Earnings a ‘Disastrous Proposal’

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