The Price of Taxing the Rich

Wall Street Journal ^ | 03/26/2011 | Robert Frank

[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.

[Neanderthal]

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.

[randita]

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.

[Alberta's Child]

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.

[The Great RJ]

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.

[Clemenza]

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