Marta Mossburg
It's not just millionaires fleeing Maryland taxes
By: Marta Mossburg
Examiner Columnist
May 18, 2009
Maryland’s “millionaires’ tax” flopped. It was doomed from the start.
Anyone taking Economics 101 could have predicted that those best able to avoid Maryland’s new 6.25 percent marginal tax rate on income over $1 million would. They are the ones best able to choose where to live and to pay accountants and lawyers to lower their tax burden.
Market losses no doubt contributed to one-third fewer people filing taxes in that income bracket in Maryland by April 15, as supporters of the legislation say. So did those filing extensions. But they and the Republicans yelling “I told you so” miss a bigger issue: Everyone is leaving Maryland, not just the rich.
Drive south on I-83 during morning rush hour for evidence. Count how many Pennsylvania license plates adorn cars making their way south into Baltimore City in bumper to bumper traffic.
Move over to I-95, and add Delaware tags to the mix. I doubt there are enough Richie Riches to fill those cars, especially since 40 percent of the 6,000 residents earning more than $1 million each year live in Montgomery County.
At least a good portion of them have to be middle class people wanting more land, a bigger house and lower property taxes. Just talk to Baltimore City police officers who call Pennsylvania home.
And it’s not just anecdotal evidence. The U.S. Census Bureau shows more people are migrating out of Maryland than moving in. The only reason Maryland is gaining population is from women in the state having babies.
According to data from the 2005-07 American Community Survey, about 9,000 more people moved to Pennsylvania from Maryland than made the reverse trip. About 2,000 more people moved to Delaware from Maryland than the other way around. And about 3,500 more people moved to Virginia from Maryland than the opposite.
Let’s look at a few more favored destinations. Over 8,000 more people moved to North Carolina from Maryland than North Carolinians moved to the Free State. And about 7,000 more people moved to Florida from Maryland than the other way around.
Even West Virginia lured nearly 3,000 more Maryland residents than the other way around. C’mon. No one can say West Virginia has more to offer than Maryland.
What do all of those states have in common? Lower taxes.
The only bordering locale where more people moved to Maryland than away is the District of Columbia. My guess is that the inflow will slow since the Census results do not account for migration patterns since the slate of new taxes went into effect in 2008 that make Maryland more tax-heavy than Washington. Those new taxes mean Marylanders shoulder the fourth highest tax burden in the nation, according to the Tax Foundation.
All of that evidence cannot be a coincidence.
Analyses of other states show it is not. In their 2009 American Legislative Exchange Council report, “Rich States, Poor States,” Arthur Laffer, Stephen Moore and Jonathan Williams show that “over the past 25 years, tens of millions of Americans (and immigrants) have voted with their feet against anti-growth policies that reduce economic freedom and opportunity in states mostly located in the Northeast and Midwest.”
Their study cites California as a key example of how natural beauty, great weather, ports and other advantages (remind readers of someplace?) cannot overcome a high-tax and anti-business environment. From 1998-2007, California experienced the second largest outflow of people of any state in the country.
They also show that high-tax states also produce some of the biggest income disparities within their borders, the ironic consequence of redistributionist policies.
Comptroller Peter Franchot will not be able to give a final assessment of millionaires’ tax returns until after the October filing deadline passes. But Marylanders do not need to wait until the results for proof that high taxes are bad for everyone in the state.
This means legislators must stop relying on raising taxes and their other favorite cure-all, slots, to balance the budget. Estimates for both are way off. Instead, they need to promote pro-growth policies that make Maryland competitive with surrounding states – and because we are in a global economy – other countries.
Rescinding the millionaires’ tax is one piece. But returning the state to its 2006 tax structure should be the first big goal. The alternative is losing the most productive people to other states, luring fewer and fewer of the wealthy seeking to move near Washington, lower tax revenue and a higher tax burden for those who remain.
Examiner columnist Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute.
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