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The Price of Taxing the Rich
Wall Street Journal ^ | 03/26/2011 | Robert Frank

Posted on 03/26/2011 7:46:35 PM PDT by SeekAndFind

As Brad Williams walked the halls of the California state capitol in Sacramento on a recent afternoon, he spotted a small crowd of protesters battling state spending cuts. They wore shiny white buttons that said "We Love Jobs!" and argued that looming budget reductions will hurt the Golden State's working class.

Mr. Williams shook his head. "They're missing the real problem," he said.

The working class may be taking a beating from spending cuts used to close a cavernous deficit, Mr. Williams said, but the root of California's woes is its reliance on taxing the wealthy.

Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

Mr. Williams, a former economic forecaster for the state, spent more than a decade warning state leaders about California's over-dependence on the rich. "We created a revenue cliff," he said. "We built a large part of our government on the state's most unstable income group."

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.

Arriving at a time of greatly increased public spending, this reversal highlights the dependence of the states on the outsize incomes of the wealthy. The result for state finances and budgets has been extreme volatility.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Culture/Society; News/Current Events; Philosophy
KEYWORDS: rich; taxes; wealthy

1 posted on 03/26/2011 7:46:37 PM PDT by SeekAndFind
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To: SeekAndFind

2 posted on 03/26/2011 7:47:31 PM PDT by SeekAndFind
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To: SeekAndFind

3 posted on 03/26/2011 7:48:08 PM PDT by SeekAndFind
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To: SeekAndFind

4 posted on 03/26/2011 7:48:36 PM PDT by SeekAndFind
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To: SeekAndFind

The rich create jobs.

I have never seen a poverty stricken individual create a job for another person.


5 posted on 03/26/2011 7:48:45 PM PDT by scorchedearther
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To: SeekAndFind

The richest 1% only pay 41% of all taxes?

Why aren’t they paying their ‘fair share”

they’re so evil


6 posted on 03/26/2011 7:56:34 PM PDT by Mr. K (Job #1 DEFUND THE LEFT then Palin/Bachman 2012 -Unbeatable Ticket~!)
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To: Mr. K

The reason why states like California are in trouble is simple... THEY DEPEND TOO MUCH ON THE ‘TAX THE RICH TO PAY FOR OUR SPENDING’ STRATEGY.

Almost half of California’s income taxes come from the top 1% of earners. In New York, the percentage is now 41%, up from 25% in 1994. In Connecticut and New Jersey, the top 1% pay more than 40%.

Being so dependent on super-rich people is great when times are good, because revenues soar. But the trouble is that the earnings of super-rich people are super-volatile, so when times are bad, or even mediocre, tax revenues plummet.

If governments approached budgeting the way smart people would, they would run massive surpluses in boom times, thus storing acorns for the inevitable winter ahead. But if our government officials have demonstrated anything over the years, it’s that they are utterly incapable of doing this. Instead, they look at the revenues in the boom times and think “WOW! We’re rich! We can spend every penny of that and more!”

And then the boom times end and deficits explode.

This phenomenon is especially acute in states in which huge portions of the total tax base are paid by super-rich people, because the incomes of super-rich people are wildly volatile.

In a boom year, for example, a successful Wall Street managing director might make $5 million. In a crappy year, he or she might make $1 million. Both of these incomes are otherworldly when compared to what normal folks make, so it’s no surprise that most people are in favor of socking it to the rich. But with said managing director paying a big slug of those incomes in taxes, the hit to the state’s budget is huge.

All of which is to say: There’s a downside to socking it to the rich.


7 posted on 03/26/2011 8:03:28 PM PDT by SeekAndFind
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To: Mr. K

Two words: G E


8 posted on 03/26/2011 8:03:57 PM PDT by scorchedearther
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To: SeekAndFind
Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

This is the most profound paragraph I have read in several weeks. Relying too heavily on rich people for taxes is a very risky business. Not a good business case at all!

This argument, to a conservative, trumps all the "fairness" arguments that typically dominate liberal--conservative debates on this topic.

9 posted on 03/26/2011 8:09:04 PM PDT by mlocher (Is it time to cash in before I am taxed out?)
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To: SeekAndFind

Reasoning from the mind of a liberal

http://www.youtube.com/watch?v=5obQumhzuIk


10 posted on 03/26/2011 8:09:29 PM PDT by DakotaRed (Why not just pass a law requiring criminals to obey the laws?)
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To: SeekAndFind

I’m having a thought. There are way too few wealthy people, and they aren’t nearly well enough armed, that they can co-exist with a population that has been convinced that the rich have ruined their lives.

It makes no difference what the truth is. It makes no difference that everybody can be rich; that most rich work their butts off to get that way, that the rich are mostly paying all the taxes, are giving most of the charity, or are employing most of the people. The truth doesn’t matter.

What matters is the deception/perception. Convince the masses that the “rich” are screwing them, and you have revolution. Representative democracy was supposed to minimize that probability, but it doesn’t preclude it. In Wisconsin, it looks like a considerable part of the population is fine with senators running away, and think that passing laws is anarchy.


11 posted on 03/26/2011 8:09:43 PM PDT by CharlesWayneCT
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To: SeekAndFind

Bump


12 posted on 03/26/2011 8:12:06 PM PDT by Incorrigible (If I lead, follow me; If I pause, push me; If I retreat, kill me.)
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To: SeekAndFind

“New York, for instance, imposed a “millionaire’s tax” in 2009 on those earning $500,000 or more, although the tax is expected to expire at the end of 2011.”

Walruses will be living on BLT’s and Jagermeister before New York kills the “millionaire’s tax.”


13 posted on 03/26/2011 8:12:38 PM PDT by Rembrandt (.. AND the donkey you rode in on.)
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To: SeekAndFind
Jobs come from profit..
Less profit, less jobs..
More taxes, less profit..

BOOMTOWN... less taxes, less government..

14 posted on 03/26/2011 8:18:24 PM PDT by hosepipe (This propaganda has been edited to include some fully orbed hyperbole....)
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To: hosepipe

It’s old adage but worth repeating... “We cannot tax ourselves into prosperity”...

” I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
— Winston Churchill


15 posted on 03/26/2011 8:26:42 PM PDT by tflabo
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To: prairiebreeze

read in AM


16 posted on 03/26/2011 8:39:44 PM PDT by prairiebreeze ("We need to be in it to win it, and if there's doubt we need to get out". -- Palin on Libya.)
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To: SeekAndFind

The neanderthals are running us dry! and destroying our wealth....


17 posted on 03/26/2011 8:42:40 PM PDT by fabian (" And a new day will dawn for those who stand long, and the forests will echo in laughter")
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To: SeekAndFind

Why not just tax GE?


18 posted on 03/26/2011 8:49:20 PM PDT by GOPJ (http://hisz.rsoe.hu/alertmap/index2.php - It's only uncivil when someone on the right does it.- Laz)
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To: SeekAndFind

Who IS John Galt?


19 posted on 03/26/2011 9:10:06 PM PDT by April Lexington (Study the Constitution so you know what they are taking away!)
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To: SeekAndFind

After hearing about GE and their 0 tax ... what we typically think as rich seems more like middle class.


20 posted on 03/26/2011 9:36:52 PM PDT by Porterville (Methink'st thou art a general offence and every man should beat thee.)
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To: SeekAndFind
Stop calling them "the rich" or the "wealthy." The correct term is "high income families," most of whom are not rich at all.

Every news outlet consistently calls them rich or wealthy instead of high income. There are plenty of high earners that spend every cent they make and then some, and are not the least bit rich.

I wouldn't be surprised if this "rich/wealthy" tag didn't come out of the Journolist. The liberals saw that the term "high earners" might bring to mind hard-working or highly intelligent people, and that there might be some political sympathy for those traits. Call them the rich or the wealthy instead and people tend to picture trust funders or fat guys wearing tuxedos and smoking cigars in their clubs as they check their investments in the WSJ. Much less sympathy for that crowd. I am certain that this incorrect terminology is intentional on the part of the MSM, and that they will continue to use it even though they know it is incorrect. They want these stories to have a political impact that favors libs and dems.

21 posted on 03/26/2011 11:29:57 PM PDT by Neanderthal
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To: SeekAndFind

From 2004 to 2008, NJ lost over $70 billion in wealth because the “rich” left the state thanks to the onerous taxes enacted by democrats and then Governor Jon Corzine.


22 posted on 03/27/2011 6:03:33 AM PDT by randita
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To: Rembrandt
I wouldn't be surprised if NY let that tax expire. I'll bet they collect far less in revenue from it than they would have collected if they just had a flat tax rate for everyone in the state.

At the rate the financial services sector declining in New York City, we're soon going to be at the point where they only people who pay that "millionaire's tax" are going to be professional athletes, entertainers and maybe a handful of top executives.

23 posted on 03/27/2011 7:25:17 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
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To: SeekAndFind
What surprises me is that liberals assume that the “rich” will like sheep just let themselves be fleeced. The rich didn't become rich by being stupid. They have the resources to avoid taxes either by hiring tax experts to sleuth out tax breaks or simply move to more tax friendly states.
24 posted on 03/27/2011 9:51:56 AM PDT by The Great RJ (The Bill of Rights: Another bill members of Congress haven't read.)
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To: SeekAndFind

Bump to the top. Would love to see what the Buchananite populists say about this.


25 posted on 03/27/2011 10:58:49 AM PDT by Clemenza (Remember our Korean War Veterans)
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