Md. taxes sending retirees south Fla. is attractive because it has no state income tax

The Economy

July 19, 1998|By Jay Hancock

TOM DONOHUE, president of the U.S. Chamber of Commerce, has a nice place in Montgomery County -- near the C&O Canal. But he might not be there long.

"My wife says we have to move to Florida" after retirement, says the 59-year-old, who joined the chamber in September after running the American Trucking Association for a dozen years.

If the Donohues leave, they'll join a throng of refugees zooming down Interstate 95 in a Cadillac with golf clubs in tow, hoping for a better life elsewhere.

Or at least a better marginal tax rate.

Liz Donohue keeps the books in the Donohue household. She has remarked that Florida imposes no tax on personal income. She has observed that Maryland taxes personal income at 4.75 percent and that Maryland's counties tax it by another couple of points. And she has deduced that after Tom leaves the chamber in a few years, the Donohues can establish a tax residence wherever they want.

As many as 78,000 others have so calculated. That's about how many Marylanders have lit out for Florida since 1980, according to Internal Revenue Service data crunched by the state Office of Planning.

No other state has attracted so many Marylanders. No other has attracted half as many.

"One, they like the weather [in Florida]," says Deborah Voso, a certified financial planner in Frederick who specializes in retirees. "Two, they like no state income tax."

Perhaps a fifth or a fourth of her retiree clients move out of state, Voso said, and so many head to Florida that she's registered there and in Maryland.

The South has beckoned Marylanders for years, but the song seems to be getting louder and sweeter.

Maryland booked a net loss to Florida of 5,000 people per year, on average, from 1991 to 1996, about 8 percent more than the average for the previous five years.

"It's not only Florida," said Mark Goldstein, economist with the Maryland Office of Planning. "It's Virginia. It's the Carolinas. It's Georgia. It's starting to pick up more to the Southern states."

In 1996, the number of departing Marylanders reached its highest point since statisticians started measuring such things 17 years ago, according to a report Goldstein put together a few months ago. Ninety-three hundred more people left the state than entered it from other states that year, the fifth year in a row of such losses. Most went south.

"This latest loss, and its magnitude, is the most surprising of the net outflows in each of the last five years since the Maryland economy has been gradually recovering from the depths of the 1990-1991 recession," the report said.

Typically, a strong economy has led to net immigration for Maryland, not the opposite.

But commerce in many Southern states has grown faster than it has here. And as Maryland's population ages and figures how to live on fixed incomes -- the number of Marylanders over age 65 is expected to increase by half by 2015 -- Southern tax codes look appealing, too.

The tax rates in most Sun Belt states aren't as attractive as Florida's, but they generally treat personal income more favorably than Maryland does. And the South hasn't patented low taxes. It's no accident that the only Northeastern state to which Maryland is losing residents is Pennsylvania, which has a top personal rate of 2.8 percent and exempts much retirement income, Voso said.

For sure, tumbleweeds won't roll across the Beltway soon. Babies and immigrants from abroad replace Maryland's defectors. Maryland is one of the few states north of the Potomac expected to gain population in coming decades.

But the Donohues, and others eyeing retirement at lower latitudes, are the kind of people state leaders should want to keep around. They're well off. They don't have kids to burden the schools.

The General Assembly can't do anything about Maryland's weather, although some legislators might want to give it a shot. And it can't aim taxes at fugitive pensions earned in Maryland. The feds banned that in 1996.

But the retiree drain may yield more ammo for people who think last year's state income tax cut wasn't enough.

Pub Date: 7/19/98

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