Washington would not be doing any favors to its taxpayers by establishing a state income tax on those making more than $200,000 a year. When the wealthy become targets of money hungry politicians, the rich often move away from high tax jurisdictions. This is the problem that Washington could face if Initiative 1077 is passed.

 Proponents of 1077 argue that “three of the states with the highest top marginal income tax rates (New Jersey, California, and Hawaii) have higher percentages of households with incomes above $200,000 . . . if a state income tax really drove wealthy people to move away, the opposite would be true.” While New Jersey, California, and Hawaii have higher percentages of households with over $200,000, they may not have those high percentages much longer. The proponents of 1077 have neglected to mention that high state income taxes have been chasing out the rich for years.

For instance, in 2008 Maryland created a tax bracket for millionaires, raising the top marginal rate to 6.25%. That tax hike cost Maryland $100,000 million in revenue as the wealthy moved away. 

The Center on Wealth and Philanthropy noted that between 2004 and 2008, 302,780 households left the state of New Jersey, costing $70 billion in revenue. Ken Hydock, a certified public accountant discussed how his wealthy clients moved away for tax reasons:

one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and “never stepped foot back in New Jersey again. He avoided paying about $6 million in taxes. He passed away two years later and also saved a huge estate tax, so he probably saved $7 million.

Proponents of high income taxes on the wealthy also argue that the extra revenue gathered will meet projections despite the fact that some people are escaping high tax jurisdictions. However, that argument can’t be backed up. In 2007, Michigan raised their taxes by $1.4 billion, the income tax being raised from 3.9% to 4.35%. Ever since, Michigan has lost 750,000 private sector jobs as revenue came in under $1 billion below projections.

ATR’s State Trends publication reports that households that migrated from high-tax states had average incomes of $70,525 – above the national average of about $50,000. Households that specifically chose to move to low tax states had incomes of nearly twice as much, at $101,091.According to the Center for Fiscal Accountability also reports that in 2007 the states with no income taxes saw a rise of over 235,000 residents. The ten states with the highest income taxes saw a loss of 441,000 residents.

 Taxes on the wealthy are actually a huge incentive when it comes to creating businesses. According to the American Legislative Exchange Council’s publication Rich States, Poor States, 2008 saw more Fortune 500 companies in Texas (where there is no personal income tax or corporate income tax) than New York. Washington should keep this in mind when it comes to levying new taxes, especially since Idaho Governor Butch Otter is trying to “woo” businesses into Idaho with a “love letter” that explains Idaho’s lower tax burden. And while Idaho does have a personal income tax of 7.8%, it is still lower than 1077’s proposed 9% tax.

 Billionaire and founder of Paychex, Co. moved from New York to Florida (one of the other nine states without an income tax) stated

I LOVE New York. But how much should it cost to call New York home? Decades of out-of-control budgets, spending hikes and relentless borrowing have made New York simply too expensive. . .by moving to Florida, I can spend that $5 million on worthy causes . . . one thing's certain: that money won't continue to fund Albany's bloated bureaucracy, corrupt politicians and regular special-interest handouts.