New York finds out that (gasp!) taxing the rich more doesn’t pay
Why do we have to keep rediscovering—as the state of New York recently has—that raising taxes on the rich is so often of illusory benefit?
Probably because it’s such a tempting thing to do. After all, there the rich are, with their perks, their conspicuous consumption, and their excess money (“excess” may be defined as “making more money than I think they should”) just ripe for the plucking. So why not take it? Heaven knows the states could use the money; many are in dire straits. And they’ve got the power to tax, so why not use it?
Well, aside from any other issues, there’s one simple and practical reason: raising taxes on the rich often results in a drop in tax dollars collected. This simple but counter-intuitive economic truth is something many liberal legislators continue to ignore, as New York has just demonstrated:
Paterson [New York’s governor, who to his credit had opposed the tax hike, to no avail] noted that revenue from tax increases was running 20 percent below projections and that, in particular, the wealthy were not paying up. So far, the state had only collected about half of an expected $1 billion in income tax revenues from the state’s wealthiest residents. “You heard the mantra, ‘Tax the rich, tax the rich,”‘ Paterson said. “We’ve done that. We’ve probably lost jobs and driven people out of the state.”
Well, it’s not as though they weren’t warned; but I guess they don’t read neo-neocon (see this article I wrote on the subject back in May, and also this one). And I guess they don’t read the Wall Street Journal either, because the mechanism by which it all happens was explained there as follows:
We [Arthur Laffer and Stephen Moore] believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
Whatever his flaws may be (and Obama seems to think he has a good many), New York Governor David Paterson seems to have been paying attention. Perhaps this is because he has had personal experience on the matter; here’s how it went down [emphasis mine]:
When David Paterson became governor of New York…the former state senator from Harlem shocked New Yorkers by declaring that taxes were too high and that he had many friends who had left the state because there were better opportunities elsewhere. New York had to grab control of its spending rather than continue raising taxes, said the former state senator with a long tax-and-spend track record, in what amounted to the equivalent of ideological heresy.
Still, as a political lightweight and accidental governor, Paterson quickly got rolled by the big-government wing of his own party, who passed a budget for this year with $6.1 billion in projected new taxes and fees, led by sharply higher rates starting for those earning more than $200,000 a year. Asked if the budget made sense in the recession an outgunned Paterson said, “None of this makes sense.”
The irony is that it’s Paterson who will be the one more likely to suffer the political fallout, rather than that big-government wing of his party. My guess is that most of those representatives are from districts where the people like what they did, and even demand it; the desire to give the at least the appearance of soaking the rich is so very strong.
If these state legislators face re-election, I doubt that their voters will connect the dots and realize that higher taxes are driving money away from the state rather than towards it. After all, as the article said, this is political heresy—and we can’t have any steenking facts get in the way of our cherished beliefs, can we?
Taxing the rich and finding a revenue decrease is not the important issue.
Playing to the resentment of the envious is the important issue.
If push comes to shove and the pol is questioned about this, he will blame the greedy rich for fleeing.
It’s like a union whose actions cause an employer to leave the state.
Carrying on about the greedy son of a bitch is almost as good as having a job.
Right?
Richard Aubrey: absolutely. Results are not the point. Talking points are.
And meanwhile, the states grow more and more insolvent, and look to the federal government to bail them out, and the federal government will continue the “soak the rich” rhetoric and end up taxing us all. But the resentful will be happy, and that’s what counts.
Did states which did not enact such tax increases not suffer a decline in revenue from personal income taxes? Surely that’s a relevant question, but the article neither raises nor answers it. How is the decline in revenue broken down by tax bracket? Surely this is also a relevant question, given the effect of the recession on personal incomes. Again, not a question the article chooses to consider. How many people affected by the tax increases have moved to states that did not have such tax increases? How does that compare to such moves in years when there were no increases? Crickets.
Never believe a thing simply because you want it to be true.
Pingback:Taxing the Rich Never Pays « Wading Through The Mire
This is just one of the many benefits of propaganda, specifically the active operation of class warfare.
It’s not clear from these numbers whether raising the top marginal tax rates necessarily leads to a drop in revenue; it could well lead to less additional revenue collected than expected, for the reasons you cite, but the fact that revenue is dropping in the midst of a massive financial crisis is hardly that surprising. In other words, there are lots of factors at play here in addition to the effect of raising the marginal tax rates. Revenues in nearly all states are down, so the argument that the tax revenue has simply shifted elsewhere is rather weak.
However, it’s certainly likely to be the case that raising the top marginal rates may have unintended consequences; the only question is whether those consequences outweigh the increase in revenue, and whether those consequences also cause an overall drop in economic activity.
Why is Rosen asking questions about things Rosen wants to be true?
” I doubt that their voters will connect the dots and realize that higher taxes are driving money away from the state rather than towards it. ”
Why should they when a vast number of those voters are the direct beneficiaries of tax dollars rather than the payers. As long as their checks show up….
It’s not clear from these numbers whether raising the top marginal tax rates necessarily leads to a drop in revenue
It’s not clear to you how human nature intersects with public policy and the perception there of.
As to whether the numbers are clear or not, they are irrelevant because we are dealing with humans, not numbers in a sack.
Mitsu: If you read the link to the Laffer article, you’ll see that it’s not just happening in the economic downturn. Research supports the fact that it’s a general phenomenon.
And if you read this response to the Laffer article, you’ll see it’s not happening at all. So once again, just like in global warming and everything else, we can fall into the endless cycle of competing claims, so that in the end everyone gets to believe their own pet theories are true and to nurse grudges against the others who are part of the conspiracy to destroy all that is good and holy.
That’s because the party bureaucrats decide when things happen or not, Rosen. Not you. And not the masses in a democracy. Power is the only thing that matters, isn’t that right.
so that in the end everyone gets to believe their own pet theories are true
That’s unsustainable and you know it. Without the rational common ground that is required for peace and deal making, you inevitably cause extreme competition (war) to break out as one faction will simply try to impose their reality on others given the failure of diplomacy and peaceful methods.
This is a good thing in your ideology’s dogma, yes.
Btw, without access to the IRS’ record of the source of income on these supposed new rich income earners, there’s a more than equal chance that they are government bureaucrats that had gotten a sufficient raise to hike their income by exploiting the investment sources of small businesses.
Raising union and government salaries to ‘rich’ levels, while deprecating the income of lower tiers and the middle class, is also a good thing in your ideology’s dogma, isn’t it.
August 13, 2003
The Historical Lessons of Lower Tax Rates
by Daniel J. Mitchell, Ph.D. –
http://www.heritage.org/research/taxes/bg1086.cfm
Rosen’s counter spans 1997 to 2006, in the states of CT,NJ and NY, when the NYC financial sector was blowing and going. I am strongly inclined to believe that most of the fat cats worked on Wall St and lived in CT or northern NJ, if not in NY State. Greenwich CT was/is home to many of the huge hedge funds.
So if these states raised personal income taxes during the decade, the rich, and richly taxed, could not then afford to leave their megabuck jobs. They took the state tax hit. But with the cratering of their salaries and bonuses, the whole story changes. It may be not as much about the rich moving with their money, but rather that the spendthrift legislators saw no possibility of future flattening of the curve in Rosen’s linked article.
Problem:
“raising taxes on the rich often results in a drop in tax dollars collected… [as] there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state.”
Answer:
Raise taxes on the wealthy nationally, so that the rich cannot escape them.
Problem:
The rich move out of the country.
Answer:
Establish a one-world government, so that the rich cannot continue to escape taxation.
Problem:
Faced with eternal support of the unproductive, the productive will stop overachieving.
Answer:
Re-education camps and cradle to grave indoctrination in government approved dogma.
Problem: Human nature
Answer: the elimination of individuality from all but the elite with all other classes enslaved.
G.B.
You’ve got it.
Now, let’s presume a doctor discovers his new marginal tax bracket is 60%.
He further discovers that he makes enough starting about Thanksgiving that everything after that is taxed at 60%.
Keep in mind it’s not just that he’s losing 60%. He has to do, say $50,000 worth of work, taxed at 60%, to keep $20,000.
$50,000 worth of work is not inconsiderable. To do it for forty cents on the dollar may not be attractive.
So maybe he quits in early December and parties until early January, when he heads south for a few weeks.
The income taxed at 60% does not exist and a good month of physician activity disappears, too.
Everybody wins.
Morons.
I have gotten into this conversation before, and it always gets stuck since the ones that have to learn in the stalemate refuse to do so (and read both sides), and instead have read very elaborate explanations as to why every positive is a negative (and so dont have to read the other sides), but they cant navigate the validity themselves (so it amounts to a vote to what they trust as reasonable and correlates with their guesses).
as far as taxing the rich in a free country?
they are mobile. its the difference between trying to hit a target with 20lb weights on their feet weighing in at 400lbs, and a 175lb guy in nothing but a speedo.
Liberal Economics: Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.
Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government incurs a deficit while it discovers the “knack” for creating the jobs that the rich are hiding.
The Political Dictionary: Liberal Economics
Stimulus is supposed to justify taking more tax from the lazy investments of the rich, to give money to the non-rich, who will spend it immediately to improve the economy. But, if it were true that government spending created waves of prosperity, we would all be on lounge chairs in Aruba by now.
Instead, stimulus directs resources to serve bureaucrats. This interferes with the entrepreneurial search for what people want and how to employ people to make those things. Stimulus slows a recovery.
You might as well think that bank robbers are good for the community because they put money into circulation.
A Short Argument Against Stimulus
Just to tip the topic back toward New York for a moment, it’ll be interesting to see just who pays what price as elections roll around. New Yorkers are, pretty much unanimously, furious with the legislature, which has never been particularly functional and which paralyzed itself earlier this year in a ridiculous fight over which party got more of the perks of power. Now you may talk about health care reform, or budgets, or highways — but the New York legislature is here to show you that what it really cares about is which party’s representatives get the bigger offices and the larger staff budgets. They fought it to the death, battling each other with such adult tactics as turning off the lights while a legislator from the other party was speaking, locking each other out of the legislative chambers, and by the legislators from one party refusing to stand for the Pledge of Allegiance when it was read by a legislator from another party. They tangled themselves up so thoroughly that no legislative business got done for weeks. (I know, I know, I say that like it was a BAD thing . . . )
And of course, they happily collected their nice fat salaries for their part-time jobs throughout, just as though they were truly serving the people rather than themselves. People noticed, and they remember. At this point you could pick out almost any random New York citizen on the street and ask them who they’re planning to vote for next time around and they will tell you, “Whoever’s running against an incumbent!”
Meanwhile, Patterson is deeply unpopular, at least in some small part because he’s been trying to speak truth about the budget to a state full of people who don’t want to hear it. He didn’t do himself any favors by trying to blame his unpopularity on racism earlier in the summer, but then more recently, he picked up some sympathy points when Obama stupidly tried to muscle him out of running again, and he had the moxie to disobey. Even Democrats were annoyed with Obama for that. And then shortly thereafter, Patterson won a battle in the Court of Appeals about his authority to appoint a Lieutenant Governor, which he had done in an effort to break the legislative stalemate that the legislature wouldn’t resolve itself.
Patterson certainly isn’t my favorite politician, but he is dead right on the question of overtaxing the rich. People forget that the rich have power over how much money they earn. A trial lawyer can knock herself out and make a lot of money, or she can work a little less hard, have a little more time for her kids or her golf game, and still make more than enough. If the difference is all going to go to taxes — that is, if she isn’t going to keep the extra money that results from the extra work — she won’t DO the extra work. She isn’t an ATM, she’s a person. This is the part that the tax-the-rich mobs don’t want to understand.
Anyway, it’ll be interesting to see what happens in New York government. A nice little housecleaning would be cheering. We’ll see.
A former good friend of mine contributes articles and blogs for a number of left leaning think tanks in my state. He has been persuaded of the need for the wealthy to “pay their fair share.” I wish he would wake up and realize that such utopian schemes have unintended consequences that hurt the very people he professes to support. I guess that’s why I became a recovered liberal while he remained in the fold of the true believers.
Dan.
If you hurt the people he professes to support, they might start a revolution.
The comfortable don’t revolt.
You know, I keep reading how taxing the rich does not work. And, for revenues, you are correct. But you and, up to now, I may have been missing the point. Increasing taxes on the rich has nothing to do with getting more money to the state.
What it does do is forces out those who are rich and who can move. Where do they go? Wherever they want. What do they take with them? Their own liberalism which seems rife in many of the rich, and the influence that goes with money. They are merely seeding other states with their excess liberalism.
I think states who are not yet infected ought to create a law that allows them to tax any rich who move into their states at the same rate as the invader’s home states for, say, 5 to 10 years. I think you would see the rich begin to fight the liberalism they live in, and their own liberalism, rather than just transferring it. Of course, no state will do that, they believe they have more real gains to be made by having that wealth in their states.
I think that is incorrect. I think the illusion of gains from wealthy people are often fictional, and I think the losses through political activism by that money are a huge negative. The love of money as the root of evil is showing it’s ugly head, here and again, in many ways. (The love of money, not money itself, or success, which are different animals, to be certain.)
Precisely why fed taxes will go through the roof. People will leave a high tax state to go to a lower tax state. But they are much less likely to leave the country. So the feds will collect the taxes and re-distribute to the states – especially the states on one knee bowing to the feds. Hence chasing down and pummeling overseas account owners also.
The cost of that will be an eventual strangle hold on states’ rights, via financial manipulation. I don’t understand why more people don’t see it, and why even more people aren’t fuming.
Excellent Doom…
excellent beacuse he is thinking about all the other outcomes of the actions, not just the ones down the middle. and ALL outcomes are part of an assesment and are in play wheteher you want to recognize them or not, or even if the players realize.
this is the area of the meta analysis, where the elite operate moer often than the center road. if they were magicians this would be their left hand doing something while their right hand plays your game of argument to no end.
in this way, you always present the same old arguments to keep the average person in thrall and in circles but the goals are being accomplished as second order actions.
so abortion is about womens choices and such, and that goes round and round without resolution (they wont let it be resolved any way but their way). meanwhile the whole thing is about eugenics when you consider it in conjunctions with polciies as a whole, and distributino. (africans are less than 20 percent of the population but their neighborhoods have 4 times the number of clinics. and the same pimp who creamed acorn was showing that they take donations to help black women abort their children (and spanish) as well as to export it to other countries, were the effect is 100% towards another race)
and you can also note that such side revealing of the conversation is not PC. so they wont let it into the conversation to preserve the circular track to keep material (us) doing what they want (the real definitino of materialism).
Though it is that sort of thinking that unnerves professors and makes college more difficult for me. Actually, I do think professors from different colleges speak to each other about “certain” students. It’s also why I never fit in with lower ed. Not that I am always right. But it is usually simple to pick the most likely outcomes, and some of the others, and often know what a teacher or student would do or say before they did it. Good for chuckles for those who you let in on it though.
Politicians are the same, leftist politics is easier yet. A collective really is not a bright thing, since it is based on the weakest links or the lowest common denominator, it is easy to peg. Though it can be counter intuitive, sometimes by design, sometimes because they are the intellectual equivalent of visual fugliness.
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
I see a contradiction with the NY electorate, implicit in your comments Mrs Whatsit, you state;
“Just to tip the topic back toward New York for a moment, it’ll be interesting to see just who pays what price as elections roll around. New Yorkers are, pretty much unanimously, furious with the legislature,…At this point you could pick out almost any random New York citizen on the street and ask them who they’re planning to vote for next time around and they will tell you, “Whoever’s running against an incumbent!”
Then you observe, “Patterson is deeply unpopular, at least in some small part because he’s been trying to speak truth about the budget to a state full of people who don’t want to hear it.”
That tells me that NY voters may well vote out of office incumbents but that they will replace them with ideologically similar replacements. Just ones who claim to be able to get things done.
New York’s been trending liberal forever. There’s no hope for this state. I’ve lived here my entire life and can safely say that the legislators here will gladly garrot the life out of Wall Street before admitting error and changing direction. We could have a dozen ACORN level scandals of the Workers Party, The Democrats, the governor before we see progress. I like Thomas Suozzi but it looks like it’ll be Andrew Cuomo and he doesn’t strike me as too forceful an agent of positive change.
Geoffrey Britain: there is not much choice in NY, definitely not in NYC.
The upcoming elections got me raising my eyebrows when I read the biographies and “platforms” (virtually identical) of the candidates, no matter if they are in office or not.
A person who was in H.Clinton Senator election campaign? An ACLU, NY chapter dude? a government bureaucrat from the day he left college? So on, so on.
Mrs Whatsit – I was nodding my head reading your comment. The farce that is NY legislature is to be seen to be believed – if you’re unfamiliar with the way this city’s government agencies work. Then you’d know there is very little difference. Their goal is to staff their own particular cushion they are sitting on, producing as bigger smokescreen with rhetoric as possible, and manipulating public with speeches that seem to be beneficial at the moment. Yesterday Paterson found it expedient to bloviate about racism, today he changed his spiel into something that seems reasonable (lower the taxes on the rich!) – but I have no doubt if tomorrow he smelled that his own reelection chances were better served by advocating for higher taxes, he’d turn 360deg and not even blink.
While governments (state and federal) talk about “creating jobs”, as if they are the ones who do, and tax the real creators till they bleed, we’re in the deep doodoo.
Hy, ITEP is a left-leaning (see their funding http://www.ctj.org/itep/funding.htm) advocacy group. Which is fine, as it is a counter to right-leaning ones quoted by conservatives.
I don’t note that the incomes are adjusted for inflation in that data. Maybe I just missed it. The graph with diamond points also does not show many years after the tax change, leaving insufficient data for conclusions. They make a point. It may have something to it. But it looks suspiciously soft – advocacy numbers rather than discussion numbers.
That’s pretty much illustrates the problem with any of these discussions. We all post references to papers that support our pet theories. Then our antagonists post papers which purport to counter the arguments, then we try to refute those, and we get to the point where we argue about details that are completely beyond our levels of expertise (or at least mine).
I have the not-terribly-brilliant notion that in very complex systems formed of millions of independently acting individuals, it’s very difficult to tease out the effect of some single action independently of anything else, and so as I said, we fall back to believing our pet theories and discounting the others. Hence Neo’s “a mind is a difficult thing to change”.
Oh, and continuing to believe in pet theories is the most sustainable thing in human civilization. How else do you explain the groups of hundreds of millions of individuals who believe in mutually contradictory religions?
Hy, I agree with your observation about complicated systems. We can, however, draw conclusions about the advice of those who purport to be experts by checking whether they are attempting to be deceitful and whether their logic holds up. We can also note which way things tend after specific actions.
Here in NH, the natives are pretty convinced that our sustaining the highest job and income growth in the NE for decades has a lot to do with our tax climate. Was that the only cause? No, our high education and low crime rate may have had a lot to do with that as well. Or all three may be related. Unfortunately, a lot of the folks who moved in thought that the job they came up to fill had appeared by magic, created by the government. Now we’ve gone blue and gone broke.
Assistant.
Which means some folks have the opportunity to decide if their beliefs were true or false.
Since the systems are so complex, they can always figure out some other factor to take the blame.
Or, for that matter, some of them may think this is dandy, presumer they’re winners. Losers they blam on somebody else.