Estate tax, not income tax, drives rich from Maryland
Of course the number of Marylanders earning more than $1 million plunged last year. There was a financial crisis. Proportionally, as they affect income and net worth, financial crises hurt the wealthy more than others. The plunge in the fortunes of the very wealthy after the Depression caused the mid-20th century decline in income inequality as much as anything else.
But that doesn't mean taxes aren't persuading rich folks to bug out of Maryland. The number of million-dollar-plus tax returns in the state fell by 30 percent last year, reports Laura Smitherman. More to the point of tax flight, more than 500 filers with million-dollar incomes in 2007 filed no tax return for 2008, meaning they moved, died or just didn't file. Surely many of them moved.
But probably not because of the special, 6.25 percent "millionaire's" bracket on the income tax. That expires next year. Rich people are exiting Maryland, their lawyers will tell you, because of Maryland's estate tax. Maryland's estate tax applies to estates of over $1 million and can take hundreds of thousands or millions from a dead person's heirs. The federal estate tax kicks in only on estates of more than $3.5 million. And many states, including Virginia and Florida, have no estate tax at all.
For the wealthy, Maryland's estate tax is a much more powerful repellent than its income tax. I guess Republicans focus on criticizing the income tax surcharge because it was approved by Gov. O'Malley. The estate tax has been around for a while. But I bet the income tax isn't the main factor.