Those missing millionaires
Waterbury Republican-Republican ^ | December 28, 2010 | Editorial
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The left-leaning Institute on Taxation and Economic Policy and right-leaning Wall Street Journal editorial page are debating the whereabouts of thousands of missing millionaires. It seems that whenever a state government imposes a big tax increase on high-earning or wealthy taxpayers — they're not always one and the same — revenue projections turn up catastrophically wrong because the so-called millionaires are nowhere to be found.
For example, Maryland expected to raise $106 million in 2008 by increasing the income-tax rate on high earners from 4.75 percent to 6.25 percent. Instead, "taxes paid by rich filers fell by 22 percent, and instead of their payments increasing by $106 million, they fell by some $257 million," the Journal's editorial page observed March 17.
More recently, the Journal revisited the Maryland experience by way of Oregon. "In 2009 the state legislature raised the tax rate to 10.8 percent on joint-filer income of between $250,000 and $500,000, and to 11 percent on income above $500,000," the Journal noted Dec. 21. "Instead of $180 million collected last year from the new tax, the state received $130 million."
During the same period, the number of high-end filers declined from 38,000 to 28,000. That's where ITEP jumps in.
"There is a much simpler explanation for this discrepancy," it said in a Dec. 22 paper. "These 10,000 taxpayers earned less than the Legislative Revenue Office expected in 2009 as a result of the economic recession, and therefore fell below the income threshold at which the new brackets took effect."
Hmmm. All of them? So the Journal was wrong when it pointed out in March, "A lot of rich people have two homes," and not a single tycoon was moved to declare himself a legal resident of Florida?
What the tax-increasers and class-warfarists never seem to understand is that everybody — rich, poor and those in the middle — makes financial decisions based on rational evaluations of their circumstances.
A few years ago, a study found a poor person living in Connecticut, lacking skills and education, would have to earn $14 an hour by working to match the benefits, in cash and services, he received through various public-assistance programs. He's not lazy or stupid; quite the opposite. By not working, he's making a rational economic decision based on the fact he couldn't earn $14 an hour in the work force.
Of course, if those welfare benefits were withdrawn, he'd have to move to a state where welfare benefits were more generous or the cost of living was commensurate with the amount he could actually earn in a job. Such a circumstance would result in a better life for him and a lighter burden on taxpayers.
Is it any wonder wealthy people and high earners — again, not necessarily one and the same — respond in much the same way to economic stimuli and impositions by government?
This year, Connecticut lawmakers and the new governor, Dan Malloy, will have some tough decisions to make regarding taxes, spending and entitlements. They should be wary of solutions that send them down the same paths Oregon, and Maryland before it, followed, to their eventual dismay.
