Md. lost nearly 30% of millionaires last year

Comptroller's office offers no explanation

November 24, 2009|By Laura Smitherman | laura.smitherman@baltsun.com

Maryland's chief tax collector reported that the number of millionaires in the state plunged 30 percent last year to the lowest level in four years and that some wealthy residents might have moved.

The analysis from the comptroller's office is expected to stoke a debate over the General Assembly's decision to raise an income tax rate for millionaires, a budget-balancing move it enacted in 2008. While the comptroller's office makes no conclusions about the data, lawmakers on both sides of the aisle are likely to seize on the findings.

Detractors contend that the millionaire's tax, which started in the 2008 tax year, will drive wealthy residents to lower-tax states. Proponents say those fears are overblown and that the change made the tax code more progressive and provided much-needed revenue.

Sen. David R. Brinkley, a Frederick County Republican on the Budget and Taxation Committee, acknowledged that some taxpayers fell to lower income brackets because of the economy but insisted that some fled the state's higher taxes. As a financial planner, he said, he advised one millionaire client to move to Florida.

"When you increase the tax penalty to that level, it then pays individuals to find professional help to shelter more from taxes," Brinkley said. "The economic reality is that people vote with their feet."

The number of residents with net taxable income of $1 million or more fell from 7,067 in the 2007 tax year to 4,910 last year. That's out of about 2.5 million tax returns.

The drop is far larger than during the economic downturn in the early part of this decade, but the current recession is much worse.

Another layer of the analysis zeros in on whether millionaires moved last year. It shows that 542 of the millionaires who filed in 2007 did not file full-year tax returns the next year. That means they either died, left the state or didn't file a return.

Historically, a certain percentage of millionaires in one year don't file the next year. In 2008, that figure was 7.7 percent, up from 5.6 percent the year before. "Every year people move out of the state regardless of what's going on," said David F. Roose, director of the Bureau of Revenue Estimates at the comptroller's office.

The 6.25 percent bracket for millionaires expires after 2010. The tax change helped to offset the repeal of an unpopular computer services sales tax, which lawmakers passed months earlier in a 2007 special session as part of $1.3 billion in tax increases meant to close a structural deficit.

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