The last POTUS to raise taxes exclusively on the rich was Herbert Hoover. Can you hear that, Mr President?
On Nov 4, 10:23 am, MJ <[email protected]> wrote: > Soak-the-Rich Taxes: Fail!Thursday, November 04, 2010 > byRobert P. Murphy > This week's episode of 60 Minutes featured a13-minute segment on "taxing the > rich"in order to cure the government's debt problem. In addition to being an > outrageously biased story, the coverage was filled with more economic > fallacies than I can address in a single article."Progressive" Income-Tax > Codes Lead to Volatile RevenuesIn the opening moments of the segment, > correspondent Lesley Stahl explains that "eight states have increased > so-called millionaire income taxes so far as a way of avoiding drastic budget > cuts." > Of course, many readers of Mises.org really mean it when they say theft is > wrong, and that a majority cannot justly take an individual's property, even > if they plan on doing something nice with it. On this score, raising taxes is > wrong for purely ethical reasons. Unfortunately, most Americans don't endorse > this way of thinking, and so, in the present article, I'll focus on pragmatic > arguments. > In the first place, Stahl had to use the qualifier "so-called millionaire > income taxes" because not all of the high surcharges kick in at that level. > According tothis compilation, only two states -- California and Maryland -- > actually have a bracket for people making at least $1 million. The term in > practice simply means a high tax rate for people earning big incomes. For two > examples, Connecticut's income tax has three brackets: 3 percent on incomes > below $10,000, 5 percent on incomes between $10,000 and $500,000, and 6.5 > percent on incomes above $500,000. New Jersey has a similar state-income-tax > code, with the first five brackets jumping modestly up through $75,000 in > income, but the sixth and highest tax rate kicking in at $500,000. > To be sure, someone making, say, $550,000 per year is not on the verge of > starvation. Yet it's not clear that such a person is a "millionaire" either, > especially if he is young, has kids, and works in a big city with a high cost > of living. The very term "millionaire tax" -- which conjures up landed > aristocrats who sip martinis on their yachts instead of going to work every > day -- is misleading. > Beyond the deceptive terminology, the policy of "socking it to the > millionaires" actually exacerbates the boom-bust cycle in state-government > revenues. As I explain in this policy paper,what are called progressive > income-tax codes increase the volatility in revenues. During boom times, > people in a state tend to earn higher incomes. But with a progressive (or > graduated) tax code, the revenues flowing into state coffers increase more > than proportionally. This is because the average taxpayer is earning a higher > income and is paying a higher proportion of it in taxes. > On the other hand, revenues tend to crash much harder during recessions in > those states that rely on steeply graduated income taxes. Not only are > taxpayers in the state earning a lower income, but many of them slip into > lower brackets and hence pay a lower percentage as well. > Democratic governments are notoriouslyshort-term in their planning. During > the boom times, when state coffers are overflowing with revenues, the state > legislatures ramp up spending programs. When the bottom falls out during the > next slump, the legislatures are caught in a difficult position. It is no > coincidence that California and New York -- states with very progressive > income-tax codes -- also have recurring difficulties in balancing their > budgets.Bill Gates Sr. Needs to Study More American HistoryAt the 4:30 mark > of the interview, Stahl explains that Washington State is one of the few > without any income tax. Proposal 1098, crushed 2 to 1 at the polls, would > have placed a 5 percent tax rate on individuals earning more than $200,000 > ($400,000 for couples), and a 9 percent rate on individuals making $500,000 > ($1 million for couples). Again, note the rhetorical trick: earlier in the > piece, Stahl focused on how many millionaires and billionaires would be hit > by the tax. The innocent viewer would be surprised to learn that the tax > kicks in at $200,000. > To drive home the point of how modest this piddling tax increase is, Stahl > then asks Bill Gates Sr. -- a very public proponent of Proposal 1098 -- what > a couple earning $500,000 would pay. When the father of the software guru > explains it would be a mere $5,000 (that's 5 percent of the $100,000 above > the $400,000 threshold), Stahl is amazed at the low tax liability. > Washington State voters -- unlike Bill Gates Sr. --apparently learned their > lessonfrom American history. > Back when the federal income tax was instituted in 1913, Americans were also > promised that it would forevermore remain a slight irritant to the super > wealthy. Initially it imposed a mere 1 percent tax on those making under > $20,000, and a top rate of 7 percent on those making more than $500,000 -- a > fantastic sum in those days. > Yet in 1917, a mere four years later, the bottom rate had doubled from 1 > percent to 2 percent. Someone in the $500,000 bracket now faced a tax rate of > 54 percent. And the highest bracket, applicable to incomes exceeding $2 > million, faced a tax rate of 67 percent. (The history of federal income-tax > rates isavailable here.) Needless to say, Americans would not have agreed to > a federal income tax in 1913 had they realized what the politicians would do > with it.Spending Cuts Impossible?In order to demonstrate the "necessity" of > massive new taxes on the wealthy, Stahl interviewed former Reagan Office of > Management and Budget Director David Stockman, as well as Washington State > Governor Chris Gregoire. The message from Stockman was that spending cuts are > politically impossible, because neither Republicans nor Democrats have the > courage to tell voters no. For her part, Governor Gregoire argued that > cutting spending to close her state's deficit would mean heartless cutbacks > in crucial services. > In their interview, Stockman and Stahl share a laugh over irresponsible > politicians who merely "kick the can down the road" instead of facing tough > realities. This is rather ironic, since Stockman's own "solution" is at best > a temporary stop-gap measure. The federal debt exploded under the Reagan > years not because the government was starved by tax cuts; on the contrary, > federal revenues (in nominal dollars) almost doubled during the 1980s. > "It is no coincidence that California and New York -- states with very > progressive income-tax codes -- also have recurring difficulties in balancing > their budgets."Likewise, federal revenues were 25 percent higher when George > W. Bush left office than when he was first elected.[1] So what makes Stockman > think that DC politicians would suddenly become committed to a perpetual > balanced budget -- let alone long-term surpluses -- now? If Stockman's > confiscatory proposals go through, it would merely keep the game afloat for a > few more years. With the massive influx of new revenue, the politicians would > jack up spending more than they otherwise would. > The only true solution to the federal and state fiscal crises is to cut > government spending. Governor Gregoirecan pretend that this would return > people in her state to the Dark Ages. In reality, the total operating and > capital budget for Washington State grew from $53.5 billion in the 2003-2005 > budget period to $68.5 billion in the 2007-2009 budget period.[2] That 28 > percent growth over a four-year period works out to a growth in spending of > 6.4 percent per year. Now some of the increase could be blamed on price > inflation, and some on population growth, but even so, Washington State could > trim its spending merely by returning to its budget of a few years ago. > People who are concerned about the genuinely needy should keep in mind that > government doesn't create resources, it merely takes money from one group and > hands it to another. In the process, the government actually makes the total > pie smaller, because of the disincentives of taxation. If the government > reduced its parasitism on the productive classes, then private charitable > giving would increase. And let's be honest state governments have plenty of > ways tocut down on their spending.Thinking on the MarginTax hikes on "the > rich," especially at the state level, are not nearly as effective at raising > revenue as most people think. High-income earners and businesses really do > take into account a state's tax policies when deciding where to locate. It's > true, any particular individual might not sell his house and leave just > because of a new tax. But on the margin, a new tax will push more people over > the edge. (Or, going the other way, a new tax hike will deter people from > moving into the state who otherwise would have.) > In the aggregate, with millions of people moving within the United States > each year, the effects of differential tax codesadd up. To see a particularly > striking illustration of this phenomenon in the case of California -- which > surprised even me as I compiled it -- see figure 4 (page 11) of this paper. > In the 60 Minutes piece, Stahl tries to trap one of the representatives of > the antitax position. (To repeat, the entire segment is incredibly biased: > Stahl lobs softballs to the famous protax people, and paints the two unknown > antitax guys as foolish and greedy, respectively.) When the businessman > argues that jobs would be lost as some firms relocate to other states, Stahl > asks him which states? Since some of his answers involve states with their > own income taxes, Stahl thinks she's caught the guy in an absurdity. > Yet this is silly. As the businessman responded, each state has its own > competitive advantages and disadvantages. For example, there are plenty of > reasons a very productive individual would want to move to California. But > one major disadvantage is its top state-income-tax rate of 10.55 percent. > People might move to Washington, rather than California, because of this > difference. But take that advantage away from Washington, and more people > would be inclined to favor California with all of its other perks. > To see how silly Stahl's rhetorical strategy is, suppose Nicholas Cage is > reading a part for an action script. He loves it, and tells his agent to jump > on it. The producer offers Cage $1 million to play the leading-man role. Cage > insists that his agent ask for $2 million. > The agent tries to talk him down, explaining that at such a high price tag, > the producer will look elsewhere. "What other actor could they pick?" Cage > demands to know. The agent throws out names like Tom Cruise, Brad Pitt, > Robert Downey Jr., Will Smith, and Daniel Craig. Cage dismisses this notion > as absurd, because after all, some of those actors insist on being paid more > than $1 million themselves. Therefore it is inconceivable to Cage that he > could lose the part if he insists on more money. > The flaw in Cage's (hypothetical) logic is that he thinks movie producers > care only about money. On the contrary, there are all sorts of factors they > must consider when picking a leading man for an action role. Not every movie > casts the biggest star in Hollywood, because the biggest star commands the > highest paycheck. Obviously, some producers opt for actors who will draw in > smaller crowds, but they do this to contain their own expenditures. > The situation is analogous when it comes to state income-tax rates. Any > particular individual -- especially a business owner -- decides where to > locate for a variety of reasons, including the location of family, love of > certain weather, and proximity to cultural activities. But not everyone moves > to California or New York. Some people settle for "less cool" places, because > of the savings in taxes.ConclusionFor those who believe in private-property > rights, soaking the rich is an immoral policy. But it is also economically > counterproductive. The federal and state governments won't solve their fiscal > problems until they cut spending. At best, confiscating more from the wealthy > will simply postpone the day of reckoning. > Robert Murphy is an adjunct scholar of the Mises Institute, where he will be > teaching "Anatomy of the Fed" at theMises Academythis winter. He runs the > blogFree Adviceand is the author ofThe Politically Incorrect Guide to > Capitalism, theStudy Guide toMan, Economy, and State with Power and Market, > theHuman Action Study Guide, andThe Politically Incorrect Guide to the Great > Depression and the New Deal. Send himmail. See Robert P. Murphy'sarticle > archives.Notes[1] In fairness to those excoriating "irresponsible tax cuts > for the rich," we should note that federal revenues were lower during the > first Bush term than when he first came into office. But by his second term, > there were clearly plenty of revenues flowing in, so that the deficits were > the fault of spending.[2] To see Washington State's expenditures, go tothis > linkand select "Statewide Summary" under the heading "Biennial Expenditures" > on the right-hand side.http://mises.org/daily/4820 -- Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more.
