The Wall Street Journal for

    * MAY 26, 2009

Millionaires Go Missing

Maryland's fleeced taxpayers fight back.

Here's a two-minute drill in soak-the-rich economics:

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 (see here).

The Maryland state revenue office says it's "way too early" to tell how
many millionaires moved out of the state when the tax rates rose. But no
one disputes that some rich filers did leave. It's easier than the
redistributionists think. Christopher Summers, president of the Maryland
Public Policy Institute, notes: "Marylanders with high incomes typically
own second homes in tax friendlier states like Florida, Delaware, South
Carolina and Virginia. So it's easy for them to change their residency."

All of this means that the burden of paying for bloated government in
Annapolis will fall on the middle class. Thanks to the futility of soaking
the rich, these working families will now pay Mr. O'Malley's "fair share."

Printed in The Wall Street Journal, page A18


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