Maryland decided that a tax on its millionaires' in late 2007. In the spring of this year the state had to enact fiscal mid-year budget cuts because of a significant budgetary shortfall that stemmed from a 1/3 reduction in revue via the tax. Year-to-date individual income tax collections are off by more $650 million, and the Maryland comptroller has said,
"It seems reasonable to assume...that there will be a significant decline in the number of returns with taxable income over $1 million and a substantial decline in the income reported on those returns."
There is now talk that the tax was not in the long term interests of MD as more than 1,000 of the 3,000 or so "millionaires" that resided in the state in 2007 have since fled, taking up residence in states with lower income tax rates.
Still there's more bad news for the states with the highest rates, which include California and Ohio. At the very least we are about to see the top two federal brackets boosted to 36 percent and 39.6 percent, and who knows what other federal tax increases are on the way. Those rises will almost certainly depress adjusted gross income among high-earners who either seek to shelter more of their income or simply work less because their next dollar earned is being taxed at a significantly higher rate. That will make it even harder for states with high tax brackets to hit future income tax projections.
New Jersey raised rates on its half millionaire millionaires' tax in 2004. Urged by the state's unions, led by SEIU, as the solution for NJ's ongoing budget crisis, the state then collected $9.5 billion in individual income taxes in 2005. Last year, four years later, the state has collected only $10.3 billion in taxes while the amount for this year is project to fall to just $9.4 billion for the same tax. Revenues have dropped far below projections that NJ has had to reduce its spending by more than $3 billion so far this year even though NJ has received more than $2 billion in federal "stimulus package" to augment the state's budget. So far, NJ has had to default on payments to it's state's pension system. If NJ were a business, they would have long since been sunk in bankruptcy,
a remarkable achievement in a place whose residents boast the highest personal income in the nation.
It gets worse once Congress allows the Bush tax cuts to lapse next year. When they pass the projected Value Added Tax it will impact everyone who purchases ANYTHING. While that will raise direct tax rates for all Americans across the board it will impact states that have the highest tax rates, NY, NJ, CA, OH, MD the most. As revenue tax revenue falls, those states will be forced to lower their upper threshold for "millionaire taxes" in order to make up for the long-term loss in taxes. This will have a huge negative impact upon the economy. You can expect that high unemployment that Europe has come to expect, will become a permanent feature in America as small business owners refuse to hire expensive employees, and comsumer spending falls.