During state budget crises, we hear the cry that a state's wealthiest should pay more because "they can afford to" help everyone lumber through a dark economic time. New Jersey, as one of the first states with a millionaires' tax, can be considered the father of this "logic", and is considering repeating the policy this year.
If New Jersey is the patriarch of this progressive structure, then the offspring that is Maryland is learning the same costly lesson. Last year, the Old Line state created its version of the millionaires' tax, and this year it has one-third less millionaires.
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. (emphasis ours)
States such as New Jersey are experiencing this exact symptom this year. Depending heavily on those with volatile income levels creates a shaky budget during downtimes. Unfortunately, the government's response has been to worsen the situation by making the tax structure more progressive. This creates the short-term problem we are now experiencing. In the long term, it gives job creators incentive to locate their company and their wealth elsewhere. Maryland's government is now learning,
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."
When you create a system that is especially harsh on one segment of your population, some of those being fleeced will leave.
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