Maryland Lawmaker Proposes Making Millionaires’ Tax Permanent

As reported this morning in State Tax Today (subscription), Delegate Jolene Ivey (D) presented a bill (HB 1177) at a March 11th House Ways and Means Committee hearing that would make permanent the temporary “millionaire’s tax” that was enacted in 2008. In 2008, Maryland implemented four new brackets on high income earners:

• 5% on income between $150,000 and $300,000 (between $200,000 and $350,000 for couples);
• 5.25% on income between $300,000 and $500,000 (between $350,000 and $500,000 for couples);
• 5.5% on income between $500,000 and $1 million;
• and 6.25% on income over $1 million.

These state-level rates are in addition to Maryland’s highest-in-the-nation local income taxes, which are 3.2 percent of income in Montgomery and Baltimore counties, so the top rate in the state is now 9.45%, compared to Virginia’s 5.75%. HB 1177 specifically would make the higher tax rates on residents with incomes over $500,000 permanent.

Arguing her position on the bill, Delegate Ivey remarked, “Programs that help children, the elderly, the poor, the environment, education, the arts, the unemployed—everything’s on the chopping block. Millionaires should continue to share in the pain.”

While there are 31 Democratic delegates who support Delegate Ivey in making the millionaires tax permanent, the bill faces tough opposition from both sides of the aisles. So far Governor O’Malley has been opposed such a measure. State Tax Today cited three arguments against repealing the sunset on the tax:

• Del. Ron George (R) said that while some wealthy residents moved to avoid the tax, others that stayed were “counting on the tax’s sunset.”
• Del. Craig Rice (D) suggested that the state’s revenue problem could be better solved by looking at all of the taxes, “rather than just focusing on one piece of tax policy.”
• Del. Jay Walker (D) expressed concern about the effect of the millionaire tax on economic development, citing the competition with Virginia for the headquarters of Northrop Grumman Corp. and its high-income executives.
  “If we pass [HB 1177], aren’t we basically saying, ‘Why don’t you go live in Virginia?'” Walker asked.

These arguments are all valid. A recent blog post by my colleague Joe Henchman pointed out a Wall Street Journal article about millionaire flight. One out of every eight Maryland millionaires who filed a Maryland tax return in 2007 filed no return in 2008, causing the state a loss of $1 billion of its tax base. As Delegate Walker pointed out, abnormally high rates, including the millionaire’s tax rate, will weigh against Maryland when businesses and their CEOs are deciding where to locate their business and homes. Even if the Maryland millionaire tax expires as scheduled at the end of this year, Virginia and its lower tax rates for workers at all wage levels still look more appealing. Obviously, plans to keep that extra-high rate on corporate executives like Northrop Grumman’s won’t help.

Competition does matter, and Maryland is finding that out the hard way. If the millionaires’ tax is made permanent, in contrast to what Delegate Ivey may believe, Maryland’s millionaires won’t continue to share in the pain, they will instead continue to pack their bags and take their capital, entrepreneurialism, and revenue elsewhere.

More on Maryland here.

More on “millionaires taxes” here.