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Surprise: When taxes go up, taxpayers go elsewhere

Dyed-in-the-wool class warriors (including those whose opinions appear on the opposite page) should probably stop reading this piece now. The better to escape the dissidence that arises when economic facts of life are offered up against feel-good rhetoric.

Today's "Economics 101" lesson concerns tax increases, that favored weapon of class agitators everywhere.

And the primary takeaway from our journey into the real world of private-sector decision making is a familiar one: aggressive taxation of wealth through relentless income tax increases produces … less wealth.

Maryland's recent dismal walk on the wild side is germane, but only one of many recent examples.

The Free State's 2007 package of income tax increases (the largest tax increase in state history) was targeted to small-business owners and the 3,000 millionaires living in the state at that time. Twelve months later, there were 2,000 millionaires left in Maryland — and lots of red faces in Annapolis. You see, "The Powers That Be" are always shocked when taxpayers vote with their feet. Worse yet, TPTB got angrier when the millionaire's tax revenue numbers came in: A tariff that was supposed to generate $106 million in new revenue ended up losing $100 million. That a deep recession would exacerbate the damage was another missing factor in that messy narrative.

Fast forward to today: I wonder how many serious Marylanders expect the latest round of tax hikes to meet revenue expectations?

Similarly shocked were the tax hikers of the California legislature when 254 California businesses (26 percent more than in 2010 and five times as many as in 2009) abandoned the state last year. These moves followed the latest round of income and sales tax increases foisted on California employers. That state now holds the unique distinction of the highest personal income tax state in the nation and a sales tax that ranks in the top five. And tax revenue collections keep tanking. And a legislative analyst's office cautions that another round of wealth taxes might not meet revenue projections. And Lucy swiped the football from Charlie Brown again …

Another case in point: In 2009, New York revenue officials were sorely dismayed when revenues failed to meet expectations from the passage of a second wealth surcharge in eight years. Even liberal Gov. David Paterson acknowledged that repeated targeting of people with means can backfire, since those with second homes in less-taxing states can easily give themselves a tax cut by simply moving.

The notion that every economic class should pay a share of their income for government services is a cornerstone notion in any civilized society. Of course, "fair" will always be in the eye of the beholder, but I would bet that most taxpayers view marginal tax rates in excess of 50 percent as unfair.

Nevertheless, and despite our growing opposition to confiscatory tax measures, we on the right must recognize that government can be excellent: The United States Marine Corps, Seal Team Six, NASA, and our national parks system are a few examples of such excellence. For local context, think about the Maryland State Police and the Howard County school system. Few complain when government produces the results taxpayers have a right to expect.

On the left, it should become apparent at some point that the "go to" option of repeatedly fleecing producers often leads to less wealth and less revenue. Simply put, people who can afford to flee … often flee. And I'm not talking about the wealthy here, either. It is also a middle-class phenomenon. For any doubters, take a leisurely drive up I-83 north to Pennsylvania or Route 404 along the Delaware line any workday morning. You will see plenty of attractive new developments, many within a stone's throw of Maryland. But the collective wealth you see will not end up in Annapolis' coffers. Similar to so many tax expatriates in other states, these folks have simply had enough.

A final observation: Class warfare rhetoric is easily transformed into political ads. Thirty-second messages often speak to the "greedy" corporations and those evil rich people attempting to escape their "fair share" of the tax burden. But the real economic damage occurs after the election, when voters tend to pay less attention. It is during this time that businesses and homeowners make their economic decisions. Today, increasing numbers of business people (and families) have grown weary of being viewed as the progressives' own personal ATM. All of you advocates of millionaire (and now thousand-aire) tax increases should take note. Beware the more mobile society.

Robert L. Ehrlich Jr.'s column appears Sundays. The former Maryland governor and member of Congress is a partner at the law firm King & Spalding, the author of "Turn this Car Around," a book about national politics, and Maryland chairman for the Romney presidential campaign. His email is ehrlichcolumn@gmail.com.

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