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Tax data Maryland needs — and almost lost

Internal Revenue ServiceMedia IndustryPersonal IncomeMoney and Monetary Policy

For years, the right and left have been bickering in Maryland over whether or not people are coming or going, arguments that solved nothing, changed nothing and improved nothing. It's been a hot topic this year, with individual income tax hikes and proposals to raise the gasoline tax front and center on the policy agenda. The question is: At what point do high taxes drive people away to other states?

"Virginia, here I come" is a popular refrain on social media posts on groups like Change Maryland's Facebook page, with 25,000 followers who have legitimate qualms about the state's relatively high corporate and individual income tax burdens. We are not talking about a dozen or so comments like this, but thousands. Are they all simply ideologues on the right — or is this a worrisome trend that policymakers should take seriously?

The question is how to turn this anecdotal evidence into a policy debate that gets something done. And this issue of people voting with their feet is more aptly described as the rise or decline of the tax base, which has a profound impact on funding public education and health, police, fire and transportation — the core government services that cities need to thrive.

Since 1991, the Internal Revenue Service has been compiling statistics on tax filers' addresses, which the agency's Statistics of Income Division uses to show who is coming and going to every state and county in the nation. The IRS quantified the aggregate income levels of those who move, which allows it to show in precise detail how every jurisdiction is performing in attracting taxpayers.

Early this month, economists at the statistics division — apparently lacking official guidance on the future of the program — disclosed that the program was being canceled. Then, after some media attention, higher-ups at the agency reversed course this week and announced the program will continue after all. While it is fortunate that the IRS did not pull the plug, it is disturbing to think that such an important economic statistic was treated so casually by the government.

Maryland literally can't afford to dismiss these data. This state accounted for the largest taxpayer-migration exodus among any of its immediate neighbors between 2007 and 2010, with a net out-migration of nearly 31,000 residents. The IRS also identified Maryland's key competitor in attracting taxpayers. Virginia is now home to 11,455 former Marylanders, taking $390 million in taxable incomes during this three-year period.

In all, Maryland lost $1.7 billion in taxable incomes during this period to other states. Maryland joins high-taxed states including New York, California, Michigan, Illinois, Ohio and New Jersey among those with the largest mass exodus between 2007 and 2010. Maryland saw the seventh-highest negative net migration in the nation.

As for local jurisdictions, the IRS data show that some of Maryland's most successful counties in terms of increasing the tax base are those with smaller populations. Eastern Shore counties Worcester, Kent, Queen Anne's and Talbot are increasing their tax base, in percentage terms, more than other jurisdictions throughout the state. Garrett and St. Mary's are also performing well. On the other hand, the state's largest jurisdictions — Baltimore City and Baltimore, Prince George's and Montgomery counties — range from sharply negative growth to stagnant.

Such data hold the promise of proving the adage true: "A problem well stated is a problem half solved." The IRS must continue to support this program, or we will not be able to state the problem anymore. Fiscal policy debate would then devolve back to finger-pointing and arguing, as during the 2007 debate over the millionaire's tax. At that time, depending on whether one was for or against the tax hike, each side chose its own statistics.

To be sure, the IRS data are not perfect. The agency does not ask people why they move. It cannot segregate people into certain incomes. What it was able to do, however, is show policymakers how jurisdictions are doing in developing the tax base as a macroeconomic indicator. And nobody is in a position to do that better than the IRS.

Jim Pettit, a communications and public-policy consultant, provides research services for various clients, including Change Maryland. His email is jamesmpettit@gmail.com.

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