One of the reasons why states are having troubles balancing their budgets is because most pols believe that raising taxes will generate revenue by a geometrically corresponding degree. Simply raising the sales or income tax by say, 3% will not necessarily garner you a 3% gain in revenue. And this goes double for raising taxes at the margins on rich people.
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.
Unlike you and we, the rich are much more mobile and have houses in tax-friendly states such as Florida and South Carolina to which they can relocate.
Such is the folly though of having the rich, you know, pay their fair share.
Because the poor don’t pay much in the way of income tax anyway and the rich can get up and get out of town that leaves but our humble little platoons in the middle bearing the costs of a recession and an expansionist government.
H/T: Carpe Diem
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