Tuesday, May 26, 2009
The limits of soaking the rich
Maryland learns that it cannot rely on its rich people, who prove they will not long suffer for their soaking.
Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."
One year later, nobody's grinning. 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. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.
No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey....
As much as we conservatives like to complain about the federal government, you have to look to the governments of the big states for truly breathtaking incompetence. As a teenager growing up in honest and well-run Iowa I remember declaring over the dinner table that "the federal government should not do a single thing that could be handled by the states," to which my New York-raised, Harvard-trained father replied, "you might think differently if you lived in Massachusetts, New York, or New Jersey." Once again, father knew best.
10 Comments:
By 
, at
Tue May 26, 10:07:00 AM:
Where have all the Patriots gone?!
By , at
Tue May 26, 10:09:00 AM:
Many of our states are structurally bankrupt -- taxing the rich isn't an answer, as they'll soon learn. Unlike the federal government, the states don't have their own dollar printing press ... Obama wants to lend them his. If you parse Stimulus, it's a bailout of the states ... but only a sugar-rush temporary fix.
Timing is everything. Do some states -- notably California -- go broker ... faster ... than Obama planned for? He's getting tapped out on federal borrowing capacity. Increased taxes at the state level will be contra-stimulus, and will need to be broader based than soaking the rich.
Here's a scenario. California can't afford to pay its teachers. Meanwhile, California is applying to Obama for its share of $100 billion of bullshit education funding grants -- nary a dime for teachers already in classrooms. Meanwhile, Californians face increased taxes to cover both. Are we happy yet?
By , at
Tue May 26, 10:34:00 AM:
I've already gone Galt in Maryland. Consulting income was $250k in 2007, cut down to $100k at present. I am voluntarily turning away work that would subject me to the "soak the rich" confiscatory tax.
No one can force me to work one single hour more than necessary just so that I can pay higher taxes. I have had enough with the fleecing of the productive class.
I proudly display my "Who Is John Galt" emblems on my cars and whereever I go I get sympathetic honks, even in the people's republic of Maryland.
By 
Dawnfire82, at
Tue May 26, 10:44:00 AM:
The solution is obvious; restrict people's ability to move out of a given jurisdiction.
By Escort81, at
Tue May 26, 11:54:00 AM:
DF82 - Heh. Your wry sense of humor has reached new heights -- make the U.S. in to 20th century Europe, vere you need papers at ze state border.
By , at
Tue May 26, 01:08:00 PM:
California in 2008 has already tried to get a 45% exit tax imposed, by ballot initiative.
Other states have tried (but failed so far, if I recall correctly) to tax pensions of residents who relocated to another state.
Some states and municipalities currently tax the income of out-of-state residents.
By JPMcT, at
Tue May 26, 09:55:00 PM:
Even if we go Galt and hide in Texas, it won't stop the Feds from going after our 401k plans. And they will...
By , at
Wed May 27, 09:29:00 AM:
The "exit tax" will never be imposed, because in my experience it's the rich Democrats who move away from high taxes fastest and first. An acquaintance of mine is an example: having loudly voted in favor of every New Jersey tax increase, the day when his employer was sold and his options cashed he quickly moved to to a new house in a no-tax jurisdiction. His wife and kids stayed behind, for nearly a year, to finish the school year. The two of them filed seperate returns that year. After all the noise in favor of high taxes this scum bailed the instant it really mattered most to him, leaving the rest of us to live with his "beliefs".
By , at
Wed May 27, 03:44:00 PM:
Congress or some of their enablers have floated the idea of a VAT (national sales tax) to prop up revenues. This is an end run around falling income tax receipts. So, however much you have left over after the feds and states take their cut will be taxed at the retail level.
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US GDP fell at an annualized rate of 6.1% in the first quarter of 2009.
US tax revenues fell by 34% in April 2009, usually a big month for tax receipts.
One would expect a proportionate drop in revenues, unless something else is happening behind the scenes.
Keep in mind that the bottom 50% of US taxpayers pay no income tax. The top 5% pay nearly 70% of the income tax.
What this says to me is that the a significant fraction of the top 5% are foregoing income (choosing not to work in anticipation of tax hikes on the upper middle class) and/or taking losses selling equities to make up for the loss of income.
Who is John Galt?
By JPMcT, at
Wed May 27, 08:08:00 PM:
The VAT is gaining favor, slong with a tax on health care benefits.
I've heard 10%
You may recall that the VAT was once one of the mechanisms for Federal Revenue in lieu of Income Tax or in addition to a nominal flat tax. Now we will get it IN ADDITION to all the other taxes.
Did somebody in the Obama administration hire a consultant to devise ways of destroying the economy???
This is surreal!!!
