Are millionaires fleeing the state?
The news that tax collections from millionaires are fading in Maryland is sure to revive the argument from conservatives that the state is driving people away with its high tax rates. It's an argument made in Laura Smitherman's story Thursday by a tax analyst from the Chamber of Commerce -- and one I expect to get a press release about from the state GOP any minute now. But I find it hard to believe.
Let's break this down: In 2008, in an effort to repeal the hugely unpopular computer services tax, the General Assembly and Gov. Martin O'Malley approved a new, temporary millionaires' tax bracket. Marginal income over $1 million would, for a three-year period, be taxed at 6.25 percent instead of 5.5 percent. We're talking net taxable income over $1 million here, so that's money you're making IN EXCESS OF $1 million after all tax deductions, etc.
Let's assume you're making $2 million a year in net taxable income. That means you're paying at the new tax rate on a whopping $1 million. Your increased income tax burden because of the millionaires tax is $7,500.
Sounds like a lot of money, right? Well, you've got to bear in mind just how much money $2 million is. According to the Census Bureau, the typical Maryland household earns $57,019 a year (and that's gross, not net). We all know that people making more than $2 million have a lot more disposable income, generally, than average taxpayers, but for the sake of argument, let's pretend that every dollar is just as important to a rich person as it is to an average person. Making a rough comparison, $7,500 for someone who earns $2 million a year is equivalent to $213.82 for the typical Maryland household, or somewhere around $4 a week. Is that unwelcome in this economy? You bet. Worth packing up and moving to Pennsylvania for? Probably not.
The anti-tax folks would be justified to argue that the fairest basis for comparison would be to look back at how Maryland's income tax brackets were before the 2007 special session. After all, if we're going to blame O'Malley and the Democrats in the Assembly for driving away our millionaires, why not look back to before they meddled?
Indeed, back in that special session, O'Malley proposed a more progressive income tax system than the essentially flat tax Maryland had used since the 1960s, much to the chagrin of lawmakers from Montgomery County who predicted a rich-folk exodous even before we started talking about special millionaire brackets.
So, after crunching the numbers, our $2 million earner now pays $22,675 more than he or she would have if we'd kept the old, flat tax brackets. Translating back to our typical Maryland family, that's the equivalent of $645.02 a year, or about $12.40 a week. Is that enough to make you move?
(Fortunately for the average Marylanders out there, it doesn't matter for you. Your tax rates didn't change, and you got a higher personal exemption out of the deal, so your income tax burden has actually gone down.)
Comments
Andy,
You, like almot all Maryland Gov't authorities miss the real issue, which is spending too much, and increasing the MD State budget by too much year over year - well ahead of the historical rate of GDP growth.
An intelligent article and opinion on that issue is what our lawmakers must see, as well as the public.
Posted by: Fred | May 14, 2009 1:14 PM
1) Until August (or October) when the returns are actually filed all this discussion is little more than conjecture.
2) To the degree that income is reduced for tax purposes do not confuse that with being reduced in actuality. There are all manner of ways to shift compensation to other vehicles.
Posted by: MrRational | May 14, 2009 6:40 PM
You are missing another point.
Individuals, such as you are discussing, are most likely running a small business, paying other state taxes, and are higher contributors to non-profits which also rely on tax dollars.
So by cutting a "millionaire's "extra" spending -- you have cut into the tax base at three different points -- which is known all too well as that "crazy" trickle down theory.
Just ask the non-profits how their funds have dried up over the last five years compared to other states and their tax brackets.
Posted by: Sabrina | May 15, 2009 7:47 AM
Terrific piece.
A number of studies have recently crunched a lot of data to debunk the millionaire-flight case against higher taxes on the awesomely affluent. A good one from Princeton last fall looked at the record in New Jersey.
The link: http://www.princeton.edu/prior/PRIOReconomy-Final-(2).pdf
Posted by: Sam Pizzigati | May 15, 2009 10:03 AM