An interesting tax debate is going on in the state of Maryland. Specifically, did a tax hike on upper income earners chase away upper income earners?
The May 14 Washington Post reported: “The number of self-reported million-dollar earners in Maryland has dropped by roughly a third compared with this time last year, renewing debate yesterday about whether the state's year-old ‘millionaires' tax’ is driving rich people beyond its borders.”
Late in 2008, the top state income tax rate was increased from 5.5% to 6.25%.
The article also reported that income tax collections were down markedly from same time last year.
The question is how much of the fall off in reported millionaires in Maryland – from about 3,000 same time last year to 2,000 this year – was due to the drop in the economy and financial markets, and how much due to the tax increase.
I would argue that both came into play, and the issues cannot and should not be separated. Higher income tax rates – in the states and at the federal level – serve to restrain investing, entrepreneurship, economic growth and job creation. And higher state tax rates make it more appealing to live, work, do business, and invest elsewhere.
It’s not one or the other – it’s both, and both together.
Raymond J. Keating
Small Business & Entrepreneurship Council