- The Washington Times - Thursday, May 28, 2009

ANALYSIS/OPINION:

American millionaires are voting with their feet - and their limos, yachts and private jets. As state governments seize the wealth of their most productive citizens to fund out-of-control spending, many targets of these predatory taxes are moving to safer harbors.

In Maryland, the number of high-income taxpayers has dropped by a third in the last year in the wake of a fleece-the-rich measure that raised state income taxes from 5.5 percent to 6.25 percent on the highest incomes. New York state’s new “millionaire tax,” a measure imposed to help underwrite 9 percent budget growth, was too much for billionaire Buffalo Sabres owner Tom Golisano. He decamped to tax-free Florida, saving himself (and denying New York) $5 million a year.

Estate taxes also are driving out the rich, who naturally want to preserve the product of a lifetime of effort to pass on to their posterity. In Maryland, the estate tax kicks in at $1 million (as opposed to $3.5 million at the federal level), at a 16 percent rate. That’s in stark contrast to neighboring Virginia which has no estate taxes and a slightly lower income tax.

The states with a more accommodating attitude toward the wealthy are booming as the redistributive states stagnate. According to “Rich States, Poor States,” a new study by Arthur Laffer, Stephen Moore and Jonathan Williams and published by the American Legislative Exchange Council, high income-tax states are losing to the low-tax states on most significant economic measures.

The study found that between 1997 and 2007, nine states without personal income taxes outperformed the nine states with the highest marginal personal income tax rates in economic growth (32 percent higher), personal income growth (32 percent higher), and population growth (more than 2 1/2 times greater).

Low-tax states created 89 percent more jobs, which makes intuitive sense, especially regarding new ventures. An entrepreneur who expects one day to be in the highest tax brackets is less likely to establish his enterprise in a state that will punish him for his success rather than one that will encourage him to flourish. Meanwhile, those who cannot escape the high tax states are left bearing a proportionately higher burden of paying for the bloated budgets passed by their shortsighted legislatures.

This movement of wealth away from redistributive states toward friendlier climes is an example of the genius of our federal system. The laboratory of democracy is working just as it should by providing diverse economic models that give choice to those with the means and motivation to relocate. If the District of Columbia believes it has a right to 8.5 percent of incomes above $40,000, and nearby Pennsylvania taxes at 3.07 percent, then we say vive le difference! If California imposes a 10.3 percent top marginal income tax rate and Washington state has none, Seattle looks all the more attractive.

Liberals and social activists in the high-tax states should be delighted by this development, since the absence of millionaires will significantly reduce the disparities between rich and poor in their states. It also will reduce revenue as those who pay the most taxes go elsewhere.

The wealthy pay an overwhelmingly disproportionate share of the total taxes in most states and across the nation generally. Rather than thanking them for the productive labor that has generated wealth, jobs and tax revenue, some states have decided that the overtaxed rich need to be taxed more. Consequently, the rich are doing what any rational person would do. They are leaving.

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