By: Roshawn Watson
Voters of Oregon have decided to take from their richest residents and businesses, as voters approved a statewide ballot to raise taxes on people with taxable income upward of $125,000. It is estimated that the new tax will affect fewer than 3 percent of filers.
This is a historic moment for Oregon, as its voters have repeatedly thwarted Congress’s attempts to increase tax revenue. For example, cigarettes taxes for children’s health care, income tax affecting most Oregonians, and nine sales tax measures over the decades have all failed. Indeed this is the first corporate minimum tax increase in 80 years.
This vote strenghtens the two-year budget that the Legislature adopted last year, and spares it $727 million worth of budget cutting during its present four-week session. However, it also raises a lot of questions, such as whether this wealth tax is unfair, “will it cause an exodus of the wealthy and businesses?”, and “will it prevent other businesses from coming there?”
Maryland can serve as a reference.
The Revenge Of The Millionaires
Briefly, Maryland failed to balance its budget in 2007, so it decided to create a special millionaire tax bracket to make up the deficit.
“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.’”
However, there were two things that Maryland politicians didn’t count on (1) a world-wide economic crisis decreasing the number of million dollar earners and (2) millionaires simply leaving (or taking in less income). “By April 2009, one-third of the millionaires had disappeared from Maryland tax rolls. 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 the previous year — even at higher rates.”
Indeed, the number of residents with net taxable income of $1 million or more fell more than 30% to 4,910 in the 2008 tax year from 7,067 the year before. Of the 2,157 “missing” millionaires, the Comptroller’s office said 542 filed no tax return for 2008. Of course in addition to moving, some of these 542 million dollar earners died, requested extentions, or just didn’t file. Also, don’t forget that some of the 2157 likely lowered their taxable incomes to avoid taxes.
New Jersey’s Richest Citizens Flee its Taxes
New Jersey appears to have a similar problem. They enacted the half-millionaire tax, and the concern is clear: New Jersey’s 2004 millionaire tax killed the golden goose. There’s a barage of headlines such as “New Jersey Wealthy Residents Flying the Coop,” “New Jersey’s Richest Citizens Flee its Taxes,” and “Departing Wealth Hurts New Jersey Charities.” Many of the recent public outcry stems from findings in a study
Migration of Wealth in New Jersey and the Impact on Wealth and Philanthropy by Boston College’s Center of Wealth and Philantrophy. The study found that New Jersey lost nearly $70 billion in net wealth from 2004 to 2008 because fewer rich people moved in than out.
Ralph Nader’s father purportedly once said that “Capitalism will never fail because Socialism will always bail it out.” My concern, especially in this election year, is that socialists will seek revenge. Already I can hear the war cry “tax the rich!” The problem with taxing the truly rich is that the rich simply move their money to countries that treat them and their money with undue respect. And when the rich move their money, the poor and middle class end up paying more taxes (Robert Kiyosaki on April 14, 2008)
In Maryland and New Jersey’s cases, the rich did not need to move their money to other countries, just to tax-friendlier states. After all, these high income earners often own second homes in tax-friendlier states, so switching your primary residence is not nearly as big of an ordeal as leaving the country. Additionally, many of these millionaires are also business owners who control their own salary, so it would not be a tall order for some, especially those who are marginally over the tax bracket, to adjust their salary slightly downward to avoid excess taxes. Of course, there are also several loop holes in almost any tax system (especially for business owners), and many of the wealthy would used their resources to find them.
Imagine the implication of driving away from your state of thousands of jobs in this economy and some of the world’s most influencial people because your state can’t balance its budget. I have stated it before; the biggest limitation to a progressive tax system is that it creates an overdependence of the state government on relatively few individuals. Thus, if they fall (i.e. because of the economy), change their residence, or lower their income, the whole system stumbles. Simply put, you just cannot tax the rich beyond their willingness to pay. I can see 70 billion reasons why this may not work out so well for Oregon.
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