Maryland residents aren't just fleeing taxes; it's the least free state in the country

Hey! It costs money to push people around.

The Baltimore Sun opened quite the can of worms when it reported earlier this month that a Maryland tax targeting high-income residents has had perverse results; millionaires are disappearing -- and taking their money with them. The exodus of the well-heeled is a reminder that when governments make life less pleasant, people are prone to vote against such treatment with their feet. But it's not just economics; Marylanders have plenty of reason to flee based on personal freedom issues, too.

According to the Baltimore Sun:

A year ago, Maryland became one of the first states in the nation to create a higher tax bracket for millionaires as part of a broader package of maneuvers intended to help balance the state's finances and make the tax code more progressive.

But as the state comptroller's office sifts through this year's returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

Specifically, Maryland applied a 6.25 percent rate on taxable income in excess of $1 million. Previously, the state's top marginal rate was 5.5 percent. The change was expected to apply to approximately 0.3% of state taxpayers. Given the small numbers of people involved, the state couldn't realistically expect to solve all its problems by targeting even the wealthiest upper crust. But revenue was anticipated to increase by about $110 million each year for the three-year lifespan of the surcharge. Instead, overall tax revenues declined by 17.4%

The problem is that about one-third of the state's millionaires disappeared.

Some of those millionaires were whacked by the recession, of course. Hard economic times hit them like everybody else and they fell out of the top tier. But, as critics had predicted, others fled the state. It's not too difficult to shift your legal residence when you own a second or third home elsewhere. From the Sun:

Karen Syrylo, a tax expert with the Maryland Chamber of Commerce, which lobbied against the millionaire bracket, said she has heard from colleagues who are attorneys and accountants that their clients moved out of state to avoid the new tax rate. She said that some Maryland jurisdictions boast some of the highest combined state and local income tax burdens in the country.

"Maryland is such a small state, and it is so easy to move a few miles south to Virginia or a few miles north to Pennsylvania," Syrylo said. "So there are millionaires who are no longer going to be filing Maryland tax returns."

Those afflicted by the tax had plenty of reason to leave. The income tax surcharge might not even be the worst of it; Maryland also has high estate taxes, while neighboring Virginia abolished estate taxes two years ago.

Overall, the Tax Foundation ranks Maryland at 45 (PDF) (with 50 being the worst) among the states in terms of its business tax environment; it's dead last in terms of income tax policy. Says the foundation, "Maryland lawmakers achieved this remarkable feat by raising most of the state’s major taxes for FY 2009 ... Maryland now has by far the worst personal income tax in the country, with a significantly lower score than second-place California."

But it's not just about dollars and cents. Just a few months ago, the Mercatus Center at George Mason University published Freedom in the 50 States: An Index of Personal and Economic Freedom. It's "the first-ever comprehensive ranking of the American states on their public policies affecting individual freedoms in the economic, social, and personal spheres." The report makes fascinating reading, as it rates each state on the degree to which it leaves people alone to live their own lives in whatever way is peaceful.

Along those lines, Maryland ranked 46 out of 50 states in its overall freedom score, and came in dead last in terms of personal freedom. Specifically, wrote authors William Ruger, an assistant professor in the Department of Political Science at Texas State University, and Jason Sorens, an assistant professor of Political Science at the University at Buffalo, State University of New York:

Maryland’s impositions on personal freedom include the second-strictest gun laws in the country, and marijuana laws are fairly harsh (except that the first offense of high-level possession is a misdemeanor, and there is a weak medical marijuana law), motorists’ freedoms are highly restricted, gambling laws are tight, home schooling laws are burdensome (curricula must be approved by the government), centralized land-use planning is very advanced, eminent domain abuse is totally unreformed, victimless crimes arrest rates are high, and civil unions are not recognized.

It's not too hard to conclude that the state mugs its citizens simply so it has sufficient resources to then boss them around. Of course people want to leave.

And they are leaving. The state has had a net exodus of population for years. According to the American Legislative Exchange Council, the net outflow of people from Maryland (PDF) has increased every year since 2004.

People are just making a fuss about it now because among the ranks of the refugees are wealthy people escaping with funds that politicians had hoped to raid for their own uses.

Why is that a surprise? Wouldn't prosperous folks be among the most mobile?

As Marta Hummel Mossburg, of the Maryland Public Policy Institute puts it, "Anyone taking Economics 101 could have predicted that those best able to avoid Maryland's new 6.25 percent marginal tax rate on income over $1 million would. They are the ones best able to choose where to live and to pay accountants and lawyers to lower their tax burden."

Maybe taxes are what finally drove the upper crust to cross the border, but a combination of high taxes and burdensome laws has been pushing everybody toward the door for years.

With the example of Maryland in mind, politicians should remember that they're in a competitive market when it comes to selling policies to people all the time, not just during election season. If they push too hard, and seek excessive control over people's life, liberty and property, customers can and will go elsewhere.

email J.D.: civilliberties (at) tuccille.com