Wednesday, May 27, 2009

Millionaires Aren't Stupid

Pick on them and they move out of state. Says the Wall Street Journal:

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. . . .One year later . . . one-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000. . . . On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

So Maryland is $206 million behind in estimated revenue from the special millionaire tax. Of course, correlation does not mean causation. Some of the 1,000 in that bracket may only have been in that bracket temporarily because of one time capital gains and many probably have dropped out of that bracket due to the economy.

My guess? Many of them are folks who own vacation condos in Florida, which has no state income tax, or second homes on a beach, lake, or golf course in Virginia or the Carolinas--all of which have lower state tax burdens than Maryland. These people just changed residency.

Of course, the Maryland Mistake is compounded by the federal alternative minimum tax. The AMT limits the amount of deductions taxpayers in these high tax brackets can take. Thus in high tax states like Maryland, New Jersey, and New York, folks pay the onerous state taxes and then can't fully deduct them on their federal income tax returns. Double whammy.

Don't be whiney babies, you say--they're rich so they can afford it. Fine. They just won't be affording it in Maryland any more. They'll go to Virginia or Florida or Texas where they can afford it a little easier. So where does that leave Maryland? And . . . where does that leave VA, FLA, and Texas?

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