http://www.baltimoresun.com/news/local/bal-md.millionaire14may14,0,6465292.story

Maryland plan to tax millionaires backfires
Top earners disappearing as economy withers

By Laura Smitherman
May 14, 2009

One of Maryland's budget-balancing tactics - asking millionaires to pay more money to the state - appears to be backfiring as the number of the highest-earning taxpayers dwindles with the flagging economy.

A year ago, Maryland became one of the first states in the nation to create a higher tax bracket for millionaires as part of a broader package of maneuvers intended to help balance the state's finances and make the tax code more progressive.

But as the state comptroller's office sifts through this year's returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

Many taxpayers in that bracket likely filed an extension and won't complete their returns until October, but a trend is emerging that indicates a "substantial decline" in the number of residents and small businesses with that kind of income, Comptroller Peter Franchot wrote in a letter to Gov. Martin O'Malley and legislative leaders.

"The revenue figures are ugly," Franchot said in an interview. "Right now, we're digging through a pile of tax returns and trying to understand this."

The recession provides an obvious explanation. Capital gains have become almost nonexistent as stock markets have tanked. Corporate executives have seen their salaries slashed. And small businesses, many of whom file individual income tax returns, have seen their profits gouged by the economic downturn.

Another more debatable explanation would be that millionaires have simply fled the Free State. While some say they have heard anecdotal evidence of the wealthy packing it up, officials say there's no proof yet of such a development.

The new 6.5 percent bracket for the highest earners became effective for the 2008 tax year, and expires after 2010. The General Assembly made the tax change last year to help offset the repealof the unpopular computer services sales tax, which lawmakers passed just months earlier in a 2007 special session as part of $1.3 billion in tax increases intended to close a structural budget deficit.

At the time, fiscal analysts said the change would bring in nearly $330 million over three years. Lawmakers left untouched the next lowest bracket: 5.5 percent for those making more than $500,000.

Franchot said in his revenue report, the first to reflect this year's tax returns, that he is most concerned about a decline in individual income taxes, which dropped more than 17 percent last month compared to the year before.

If the current trajectory remains, tax collections could fall $130 million short of current projections, which could trigger the need for additional budget cuts later this year, Franchot said. The state has made hundreds of millions of spending reductions in recent months.

Millionaires are only part of that picture. According to fiscal analysts, those with taxable income of more than $1 million accounted for only 0.3 percent of all filers.

Karen Syrylo, a tax expert with the Maryland Chamber of Commerce, which lobbied against the millionaire bracket, said she has heard from colleagues who are attorneys and accountants that their clients moved out of state to avoid the new tax rate. She said that some Maryland jurisdictions boast some of the highest combined state and local income tax burdens in the country.

"Maryland is such a small state, and it is so easy to move a few miles south to Virginia or a few miles north to Pennsylvania," Syrylo said. "So there are millionaires who are no longer going to be filing Maryland tax returns."

But Franchot and other state officials insist that it's too early to determine if that has occurred and whether any exodus would even have a discernible impact on the state's overall budget.

During a fiscal crisis in the early 1990s, the General Assembly temporarily raised the tax rate to 6 percent for those with taxable incomes of more than $100,000 for single taxpayers and $150,000 for joint returns. The number of filers in those brackets actually increased during that time, according to the comptroller's office.

Allen Schiff, who runs an accounting firm in Towson, said that those in industries hit hard by the national downturn, such as retail and banking, are likely among those who no longer qualify to pay the millionaire tax. He added that he has several high-income earners as clients who will be paying more but have no plans to leave the state.

"When you make that type of money, another 1 percent in taxes doesn't matter," he said. "They have the attitude that it is what it is."

blah blah blah

A couple/several of things:
.. with the flagging economy.
A year ago..
..intended to help balance the state's finances and make the tax code more progressive.
..Many taxpayers in that bracket likely filed an extension and won't complete their returns until October
The recession provides an obvious explanation. Capital gains have become almost nonexistent as stock markets have tanked. Corporate executives have seen their salaries slashed. And small businesses, many of whom file individual income tax returns, have seen their profits gouged by the economic downturn.
oh and you're a dil

I can think of two factors that would contribute to this on a state level that would not exist on a federal level.

Firstly, many rich people have multiple houses, and when they live on the eastern seaboard, it's very likely that at least one of those houses is in a different state simply because the states are so small geographically. Claim (truthfully or not) that your primary residence is now in Delaware or Virginia, and presto, reduce your state taxes!

Secondly, and related to that, even if the people are ACTUALLY leaving, Maryland is uniquely suited as a state where you can simply move to the other side of the big metro area and be in another state and no farther from work. This would not be an option in most places (except maybe New Jersey).

The tax avoiders would have no place to hide from a federal tax bracket like this. That said, Maryland should have been able to see this coming.

Tell that to New York David. A number of high profile millionaires have left New York. Even upstate millionaires who aren't in the tri-state area (not that you have much of a choice in high/low taxes there anyway). NYS, and NYC have clung to unsustainable tax rates, and now it's all coming home to roost as the supporters of our bountiful welfare system flee south.

Actually that is awesome. It creates a competition between states forcing them to be fiscally responsible and not relying on tax evil millionaire people.

So in that case, wouldn't you as a rich millionare or billionare to avoid paying large amounts of punitive taxes not seek to invest the bulk of your assets outside of the US and perhaps leave the country to avoid the punitive tax code?

The jobs that you would create with your dollars would also move right?

I mean that's basic human nature. If someone keeps punching you... wouldn't you move out of the way of the punches?


What makes the United States so great that as a millionaire or billionaire I just want to hang around and give 50% of my earnings back to the federal government? Is the return on that investment so great here that I wouldn't or couldn't find a better more advantageous place to live or invest somewhere else?

A millionare's tax in New York would pretty much guarantee that these same millionares will bolt NY and take their business with them. Very bad idea.

Economically, we would probably be well served by choosing to be a bit nicer to millionaires, drug dealers, and prostitutes.

All tax schemes have to reach the balance of maximum revenue, but I think that the idea of all but the most obscenely wealthy ever actually leaving America is a myth, and the obscenely wealthy already hide their assets in Switzerland and The Cayman Islands anyway.

There is no John Galt.

You people must be kidding. Would you sell your gorgeous house in Potomac because you're paying an extra 1%? Do you have any idea what it costs to move when you expect to live in a home like that.

I am not opposed to progressive taxes, but governments should be very careful about the effects these taxes have.


http://www.buffalonews.com/home/story/675186.html

" Golisano said this year's state budget — which increased income taxes on upper wage earners from 6.85 percent to 8.97 percent — was the final straw. His moving to Florida will save him $5 million in state income taxes. The billionaire founder of Paychex, a payroll processing company, has already registered to vote and gotten his driver's license in Florida, and signed the homestead exemption paperwork that will cap his annual property tax increases to 3 percent a year there.

"I'm sorry Mr. Golisano feels that he has to change his residence at this time," Gov. David Paterson said today. "I understand the people moving out of this state is one of the reasons we don't want to raise personal income taxes as we did."





First, I don't live in Potomac anymore because I couldn't afford to buy there. Bethesda or Chevy Chase either. But for people who can, it's a very short trip across the American Legion Bridge to McLean or Great Falls in Virginia where you can find just as nice houses with lower tax rates. Though Virginia does have a personal property tax that equalizes things a bit.

If it did not mean giving up my 8 minute commute, I would move across the river in a heartbeat.

BI, are you a millionaire? Are you paying this tax? I've lived in both Maryland and Virginia. Personal property tax is the thing that you always forget to plan for that bites you in the ass. But, that said, the actual millionaires who are living in Potomac, Maryland or Mclean, Virginia, would campaign hard against rising property taxes but wouldn't even think for a minute about moving out of those communities because of that kind of an increase in tax rates. If they were worried about spending money, they'd be living in Greenbelt anyway. And they wouldn't be millionaires.

What is the balance of maximum revenue? All of it?

If John Galt is not holding up the world who is... the government? Where do they get thier money from?


I get what you are saying, wealth and generational wealth resides in the Caymans and Switzerland... not income. It sure would be nice if it were here in our economy helping us. I don't think all that many people would leave the US entirely.


And this being said. I have no idea what it would be like to live on the Potomac or have that kind of wealth or even make that income. I don't live in that world. For all I know none of them would would give a shit. Hell, when you have that kind of money you can probably pay for more than a few loopholes to be written into the tax code for you.

There's lots of unused liquidity sitting around, sequestered. It would be nice if more of it were being used, anywhere.


Why do you think that our tax code is so fucking complex? Rich people can buy their own exemptions, the ones that mean something to them.

Correct me if I'm wrong SLH, but are you arguing with people that agree with you, ie Broken Iris and Electromatic?

Hmm...do they? I don't think that millionaire Marylanders are leaving their gorgeous mansions on the banks of the Potomac River to move to Mississippi because of a tax increase that even their accounts say is trivial.

I definately agree somewhat.

I guess it depends on how much the tax is effecting the individual people. I seriously doubt anyone is selling a mansion on the Potomac if they don't have to but, if I can set up a primary residence in say Florida or Texas where they don't do property tax or my situation allowed me to pay significantly less tax I'd definately consider that if I had the money and options but then there is that 3rd option of just paying for a lobbiest to influence an official to write me or my constituants specifically out of having to pay that extra money. I guess it gets to a point when you have so much money even things like income taxes are of little concern... I just have never had that experience before.

PunkDavid illustrated the situation perfectly above.

Ah, but don't we all wish we could have that experience.

Well, if you can afford to buy mansions in Potomac and Florida, I guess that your accountant will take care of the tax situation for you. But think about how much the wealthy spend just on incidentals. I was in St. John last summer. A lot of wealthy people vacation in the Virgin Islands. They don't grow anything there, and the grocery stores aren't all that well-stocked. So the people who own mansions there have food flown in from Puerto Rico on private planes. How much to you think that costs?

So the article presents the situation, admits that the problem is most likely due to the recession, but still decides to spend most of its word count devoted to an alternate explanation that even the author admits is unlikely. And the main evidence presented is some twat from the Chamber of Commerce whose colleague's friends heard of some people who moved out. Fine journalism.