The Bullet Minnesota Dodged

The Wall Street Journal tells the story of what could have been in Minnesota.

Here's a two-minute drill in soak-the-rich economics:

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. 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."

Wow does THAT sound familiar?????? Minnesota's Legislature couldn't balance the budget either. I don't care what the Speaker of the House says, when you are spending $34 billion dollars and you are only bringing in $31.6 you are spending MORE than you bring in and that is NOT the definition of a balanced budget! Anyone who says that is needs to go back to 3rd grade math class! Oh and then there was the unaddressed $6+ billion in the current deficit that they never addressed.....

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." 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 last year -- even at higher rates.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."

....like Tom Golisano did?????

All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O'Malley's "fair share."

In Minnesota's case, it's not just the Middle Class that the DFL wanted to soak. With new taxes on cigarettes and liquor (in Minnesota) and junk food, fast food and soft drinks (on the national levvel) this new generation of Democrats are proposing some of the most (dare I say it) regressive taxes we have EVER seen!

As I said the other day - these are not your grandparents Democrats. These Democrats don't care WHO they soak as long as they can get their special interest spending projects passed. Thankfully (for Minnesota) we had a Governor who was willing to do what the DFL led Legislature refused to do - balance the budget.

Thank you Governor Pawlenty for doing your job.