It seems like all over the US and throughout Europe the talk of Millionaires’ tax rates are on all the politicians’ lips whether for or against an increase. Currently, there are two theories of thought about economic effects of an increase in the tax rate for millionaires. First, increasing taxes on the rich will lower the amount of capital inflow into the economy, community, and their related businesses which will slow job growth and hurt the local economies as well as nationally. In addition, the higher tax rates could make certain cities or states undesirable for these individuals to reside and cause high net worth individuals to look for a state with a more favorable tax structure; thus removing future tax revenue and job growth hopes. The other view is that the increased tax rates would allow the cities or states more revenue to stimulate their respective economies and provide more local services. Essentially, one side believes that the wealthy should be responsible for job and development growth while the other side believes that the government should play a large role.
Recently, New Jersey and Maryland have been in the news regarding the so called ‘Millionaire’s Tax.’ Maryland’s governor, Martin O’Mallery, is in favor of renewing an expiring tax provision that adds a tax of 6.25% to individuals with $1 million or more in earnings. The opposition is arguing that Maryland’s job loss and poor economic performance is related to the high tax rate stating millionaires have taken their money and resources elsewhere to avoid this tax. While one tax cannot determine the economic performance of a state and numerous other factors should be considered, the tax asks the age old question, “Is Uncle Sam responsible for economic growth and management of our resources or should the market govern itself?”
* Thank you to Ed Bannen, Tax Staff for his contributions to this post.