Tuesday, June 23, 2009

"Capital is mobile. So are capitalists."

This useful reminder comes from a recent edition of National Review, in a blurb about the inevitable and yet somehow unexpected reaction of wealthy Maryland taxpayers to that state's attempt to balance its budget on their backs:
Maryland has discovered that you can try to soak the rich, but the rich know how to swim across the Potomac. Faced with a budget shortfall, Maryland’s state legislators enacted a higher tax bracket for millionaires — 6.25 percent on top of federal and local taxes. One-third of Maryland’s millionaires vanished from the tax rolls, many seeking haven in Virginia, Delaware, and Florida. The result: Even with the higher rate, Maryland is now collecting $100 million a year less from the guys in monocles and top hats. Capital is mobile. So are capitalists.
As is so often the case, a tax increase intended to (in liberal parlance) "raise revenue" ended up having the opposite effect. The state takes a larger share of a smaller pie, leaving it - and the taxpayers - with less pie.

Low, stable, predictable tax rates attract wealth, whether from wealthy individuals, from businesses or by encouraging investment. High taxes and politically-motivated tax-attacks on "the rich" (again, whether individuals or businesses) repel wealth.

Massachusetts, with its high cost of living and a political climate that was rated among the most unfriendly to business in the nation even before the current downturn, has been repelling business and individual investment for some time now.

Perhaps next year might be a good time to try a different approach?

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