Tax Flight Debate is One-Sided, Professor Says - Southern Maryland Headline News

Tax Flight Debate is One-Sided, Professor Says

Len Lazarick,

(August 12, 2011)—Professor Roy Meyers, the government budgeting expert at UMBC, says the focus of our ongoing stories and comment strings “on the flight/plight of the millionaires is a bit one-sided.”

Meyers is afraid that the discussion of Maryland’s tax structure will go down the sorry path of the national debate, in which “conservatives in power … have supported their blanket opposition to tax increases with arguments that are absurdly simplistic.”

The professor quite rightly points out that the study that started the whole discussion last Friday, “Tax flight is a myth,” does not say that no millionaires will leave a state if their marginal rates go up. Some will leave, but most will stay, pay their taxes, bringing a state millions more in revenue than it might lose from the departures.

“That a few millionaires might be tipped to declaring residence in Florida by a 1% increase in their marginal tax rates is not materially relevant in the accounting sense,” Meyers said.

He also points out that Florida housing “can be snatched up … for a song.” The study, by the way, also noted that there has been a net out-migration of residents from Florida in the past two years, far exceeding any flight from Maryland.

Florida taxes very regressive

The professor also sent along some fact sheets from the Institute on Taxation and Economic Policy that show Florida has a far more regressive tax code, meaning people at the bottom of the income ladder pay a higher percentage of taxes than people at the top. Meyers admits the sheets “were produced by a liberal tax advocacy group, but they follow the standard estimating conventions for calculating tax incidence that are commonly used in the peer-reviewed National Tax Journal.”

A few things jump out in the fact sheets on Florida and Maryland, which we’ve attached. (The sheets, by the way, are only “for non-elderly taxpayers,” so we’re not looking at people who move to the Sunshine State after they retire.)

First, average incomes in Maryland are higher than Florida. No surprise, since we hear about Maryland’s high incomes all the time. The only segment of the population where that’s not true is the very rich. The average income for the top 1% in Florida is $2.4 million a year; in Maryland, it is a mere $1.4 million.

Those very rich pay just 2.1% of their incomes to Florida (after federal deductions), while the super-rich in Maryland pay 6.2% of their incomes. That 4% difference is a significant chunk of change for someone making $1.4 million — $56,000, enough to pay the mortgage on a million-dollar second home.

For the lowest fifth of the income scale (less than $17,000 in Florida, less than $22,000 in Maryland), the Floridians fork over 13.5% of their incomes, while Marylanders pay 9.9%. That’s because Florida, which has no income tax, relies more heavily on sales and excise taxes, which take 9% of the income of the poorest.

For the next fifth, the percentage of taxes in Maryland and Florida is close. The top 60% of the population in Florida — which is those making more than $29,000 — pay a lower percentage of their incomes in taxes compared to Marylanders, 2 to 4% less.

Bottom line: yes, taxes are lower in Florida, especially for those making the highest incomes.

In that context, Maryland’s tax structure is “fairer.”

Benefits from Maryland taxes

What do you get for those higher taxes, if Gaver feels he is being “punished” for his financial success? As other unsympathetic commenters have pointed out, Gaver is likely to have benefited from the same taxes that chafe him.

“Was any of that financial success due to his location in Maryland?” Meyers asks. “Did his proximity to federal government agencies help him build his IT consultancy with the government? Were his IT employees trained in Maryland’s public schools and universities? Were any of his real estate developments assisted by governments…?” Were there any tax breaks and so on?

“While I honor the hard work and risk taking of America’s entrepreneurs, ‘self-made’ fortunes often receive more government assistance than many are willing to admit” Meyers said.

I am not going to ask Mark Gaver the questions Professor Meyers suggests, mainly because I think the businessman has subjected himself to more attention and abuse than he is entitled to.

As Jay Hancock pointed out his Sun blog that highlighted our story, it is hard to get “somebody who moved because of Maryland’s high taxes to go on the record. Maryland tax flight is real, but most folks changing their residence to Florida or Virginia don’t want to be quoted in the paper, for obvious reasons.” We got a shout out from the Post’s Michael Rosenwald as well.

Both online articles produced a long string of comments, many of which are none too kind to Gaver, who it must be emphasized is not “retiring” to Florida. He is 50 and is likely moving his business there as well.

CLARIFICATION: My faithful liberal reader Steve Lebowitz points out the relative Gaver cites in the article couldn’t have possibly gained her large refund through the earned income tax credit.

That’s was my interpretation of the number Gaver told me about this single mom getting back $2,000 more in a federal refund than she paid in taxes. The businessman used it to illustrate his objection to the “redistribution of wealth.”

I have not seen this woman’s private tax return, and I assumed she used the EITC. It’s very possible that she benefited from other tax provisions. I have no idea, and I’m not going to ask Gaver to reveal any more details he may know about the tax return of a relative who is also an employee. It is irrelevant to the topic of tax flight because of high state income taxes, and maybe I should have left it out of the story completely. Both will pay the same federal taxes in either state.

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