Raise taxes on the Rich, Lose $100 million.

[MKSheppard]

As MD Found out

Millionaires Go Missing
Wednesday, May 27, 2009
provided by WSJ Online

Here's a two-minute drill in soak-the-rich economics:

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%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. 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, which the state comptroller's office concedes is a "substantial decline." 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.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."

All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O'Malley's "fair share."

Copyrighted, Dow Jones & Company, Inc. All rights reserved.

[Darth Wong]

I love the way the article triumphantly laughs about being proven right, without bothering to prove itself right. At no point is evidence presented that the state suffered a net loss as a result of this policy change, as opposed to the fact that there's a massive recession going on. They acknowledge the latter, they have absolutely no idea how much of the former has gone on, then they conclude that it must be a net loss because no one disputes that "some" of this mechanism must be going on.

Black/white fallacies for the win!

[aerius]

They could simply have matched up names to numbers to prove that the millionaires actually took their money and ran, but of course they didn't do that. Then there's the other fun part, most rich people make the majority of their earnings from investments & other capital gains, and with the way the markets went in the past year, there you're looking at big fat capital losses in most cases. For all we know there could still be the same number of millionaires around in the state, they just had all their capital gains wiped out so they ain't paying taxes.

[Mr Bean]

I also love how it was a state's taxes.

Yes genius, if other states, tax the wealthy less the wealthy will move there beacuse they have the money to do that. If however all taxes are raised as such the wealthy will do one of two things, one is buy a Senator(Cheap to I might add) to rewrite the tax code so his taxes can do down. Or move overseas. Except America is one of the better places to be rich, and they face the issue of losing more wealthy via the move then they save since they had to keep moving moeny around to dodge the taxes.

Which is why until now, they simply bought Senator's. A million dollars for a reelection campaign is a shit ton of money. But if I'm worth half a billion I might spend ten million to buy six of the appropriations senators so my own personal tax cut gets through. And it's even better in the house, more people but much less money required, you can buy ten representatives for the cost of one Senator. You might say you can't give a Senator or a Rep a million dollars, ahh but see thanks to the work of the hardworking rich before you, there are so many, many ways to get that money to them.

All legally I might add.

*Edit and it was also pointed out, we are in kinda of a shitty year, the whole "economy thing" might have some vague reason to do with less tax income.

[CmdrWilkens]

Adding a bit more depth to this the "millionairs" bracket doesn't just include individuals in the state of Maryland. For tax purposes the individual income tax also includes an entire class of corporations ("S" corporations). Is one suprised that there are a lot fewer comapnies passing on at least a million dollars of profit to their owners?

*Technical bit* An S corporation is a means of organizing a corporation whereby all profits are passed directly to the owners. Instea of taxing the corporate earnings and then taxing dividends distributed after earnings (in the form of income taxes on shareholders) the S corporation distributes all of its profits to its owners who then pay taxes on those earnings seperate from any other earnings they may have.

As things work here its hardly suprising that a number of corporations, unspecified in the Washingotn Examiner article which kick started the whole thing

*Aside alert* Yes I know Mark quoted the WSJ article from Yahoo but the article is from the OPINION section of the WSJ while the substanative article is from the Washington Examiner which actually bothers to list the writer and does the bother of pointing out the inclusion of S corporations in the given bracket *End Aside*

Anyway the number of corporations is unspecified but I don't think anyone would be suprised that a significant number are not reporting at least a million dollars worth of earnings this year as against last year.

[CmdrWilkens]

More information because its worth adding from the aritcle I linked to above:

"Overall numbers reveal a 27 percent decline in total income tax revenue to about $1.3 billion in April 2009, from $1.7 billion in April 2008."

So really numbers are dropping across the board and suddenly its becaue the rich are fleeing?

"In 2007, Marylanders who earned more than $1 million accounted for one-quarter of 1 percent of taxpayers, but nearly 16 percent of income tax revenue for the state, according to Franchot’s office. Those who earned between $40,000 and $200,000 accounted for about 31 percent of taxpayers and 49 percent of revenue."

There is a statement in itself. The middle class bracket accounts for roughly a third of the state and funds half of it...that is your engine the million plus bracket is just a cherry on top.

"» Maryland: 6.25 percent for people who earn $1 million or more, plus local add-ons
» Virginia: 5.75 percent for people who earn $17,000 or more
» D.C.: 8.5 percent for people who earn $40,000 or more
» Delaware: 5.95 percent for people who earn $60,000 or more
» Pennsylvania: 3.07 percent for all earners, plus local add-ons
Source: Tax Foundation"

So the rich are worse in Maryland than VA and DE (PA has so many local taxes its hard to say) but the middle class are better than the rest: MD rate for 3,000-150,000: 4.75% which is lower than VA, DC, and DE though exceptions do exist due to local tax levels. So yeah color me real worried that in the midst of a recession where folks are filling for extensions like its going out of style that we might be a few millionaires short of last year.