'Millionaire's Tax' popular with cash-strapped states

As state income tax revenues creep downward, rates are slowly headed the other way: upward. As fewer taxpayers pay in (due largely in part to heavy unemployment rolls and lower incomes), states are grasping at other sources of revenue. At the top of their lists? Millionaires.

As of the end of last year, eight states imposed a so-called "Millionaire's Tax," or a surtax on high-earners: California, Connecticut, Hawaii, Maryland, New York, New Jersey, Oregon and Wisconsin. That number is expected to change. In 2010, even more states are considering increases on top wage earners.

Opponents of the "Millionaire's Tax" point to Maryland as a cautionary tale. With 2008 tax returns finally tallied, The Wall Street Journal reports that nearly one-third of Maryland's millionaires have gone missing. The numbers show that fewer millionaires filed tax returns in the Free State, with 5,529 returns filed as compared to 7,898. The overall tax revenues paid by rich filers fell by 22%.

One possible answer to the drop? A millionaire flight out of the state. According to the data, one in eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Reportedly, a Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states.