The Wall Street Journal notices a strange phenomenon: raising tax rates on the “rich” has a negative impact on tax receipts.
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.
Sure, some of that loss is due to the economy going into the tank – but there is also an acknowledgment by state officials that some of the “rich” have merely fled the state and its onerous tax burdens. Now middle class residents of Maryland will have to be taxed to make up the shortfall.
This phenomenon, higher taxes generating less revenue, is hardly a new thing. The left likes to pooh-pooh the Laffer Curve, but it happens to show up in the real world rather often.