Living near Northern Virginia, Maryland is just stones throw away from our front step. The Wall Street Journal has an interesting article detailing some of the economic woes our neighbor to the North is dealing with. Primarily, they have lost about 1000 millionaires and the tax revenue those families used to provide. You will probably never guess why.
Apparently, the wise leadership in Maryland decided the best way to help close last year’s budget shortfall was to increase taxes on some of the wealthiest people in the state. Specifically, they created a new tax bracket for those earning more than a million dollars a year. This great idea raised the top marginal income-tax rate to 6.25%. So in addition to the Federal tax these families have to pay, and social security taxes and local and state sales tax, they are also asked to fork over an additional 6.25% of their income. I know some of you will say that they are rich and they can afford it, but I would like to think that one day I will be a millionaire and I don’t want to be punished just because I have made some wise decisions.
As parents, we reward our children for doing well. At work, we like it when our boss rewards us for doing our job better than anyone else. So why is it that we think it is ok to punish those making the most money? When the politicians in Maryland came up with this great idea, they expected to increase revenues into the state coffers to the tune of $106 million. However, when the numbers were tallied they were very surprised.
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.
Where did those 1000 millionaire families go? It is very likely that some of them weren’t millionaires this year because of the recession, however, it is also very likely that a lot of those families basically had had enough and moved to another state with a friendlier tax code. Unfortunately, the state still has a problem. How do they bridge the budget shortfall? More than likely, the burden will fall to those still in the state that are still paying taxes. You guess it…the middle class.
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