Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
This topic has come up in several threads lately. I was reading this report http://www.alec.org/AM/pdf/tax/11rsps/RSPS_4thEdition1.pdf this AM, and stumbled on this passage. I agree that revenues will have to be increased but I'd advocate for higher rates at all income levels. I think our tax structure is already progressive enough with the top 10% paying almost 70% of all FIT - this has been shared several times before.
Several here have countered with 'yeah, but they make all the income so it's fair to expect them to pay even more' without bothering to first find something factual to base their argument on. FWIW, here's something along those lines...
Several here have countered with 'yeah, but they make all the income so it's fair to expect them to pay even more' without bothering to first find something factual to base their argument on. FWIW, here's something along those lines...
Beware of the Class Warriors
There is a lot of talk in Washington and state capitals about how to promote equity and tax fairness. Figure 5 [pg 14 in linked pdf] shows that the rich do pay their fair share in federal taxes. The top 1 percent of earners nearly pays a larger share of federal income taxes than the bottom 95 percent (roughly 40%). This happened for the first time in American history in 2007, even after tax rates were cut under President George W. Bush.
Some critics argue that the rich pay most of the taxes because they make most of the income. Indeed, the top 1 percent of earners makes about 25 percent of income, but their share of the federal income tax is much higher than their share of earned income. It is also worth noting that the bottom 50 percent of Americans now pays less than 3 percent of the total federal income tax.The U.S. tax system is highly progressive already. Further, increasing tax rates may cause the rich to pay a smaller share of taxes—the opposite of the intended result.71
We doubt the tax hikes aimed at the wealthiest residents are done. With deficits that may surpass $100 billion in the states for fiscal year 2012, we expect big pushes for tax increases in Connecticut, Minnesota, and yet again Maryland, California, and Hawaii. It is a good bet that liberal legislatures will continue to try to raise rates on businesses and high income residents.
Class warriors often forget that many of these high income earners are actually small businesses, which, through subchapter S Corporations (S Corps), Limited Liability Partnerships (LLPs), and other “pass-through” entities, pay their taxes through the individual side of the tax code. In fact, these small businesses make up more than 90 percent of all businesses, employ more than 50 percent of American workers, and pay more than 40 percent of all business taxes. Millionaires taxes are often paid by small business owners and operators, making these misguided policies job killers, plain and simple.
More troubling for the class warriors is the very real possibility that millionaires taxes will shift behavior and drive capital to more hospitable states and then suffer the Laffer Curve effect of revenue losses. We will explain later in greater detail why this approach is likely to be a failure in raising revenues and in helping a state economy. For now, we point out that one state that raised tax rates on millionaires in 2008, Maryland, already witnessed a 33 percent decline in tax returns from millionaire households, according to the Washington Examiner. Predictably, many misguided, left leaning pundits were quick to point out that this loss of millionaires was simply caused by the recession. However, a Bank of America-Merrill Lynch study 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.The rich have literally disappeared from the state tax collector’s sights.
State lawmakers almost always overestimate the popularity of tax hikes on the rich. Former governor Jon Corzine of New Jersey was defeated
after raising tax rates on the rich twice.New Jersey voters were angry at the way Mr. Corzine had failed to create jobs, failed to balance the budget, and failed to ease the highest property tax burden in the nation.Thankfully, Chris Christie, his successor, who has emerged as a conservative star in the deficit plagued Garden State, vetoed a giant tax increase less than 30 minutes after the legislature passed it.He was cheered by voters and businesses across the state.
We hate to keep picking on California, New Jersey, and New York, but they continue to be models of how not to govern a state—though Gov. Christie is heroically trying to turn things around in New Jersey and Gov. Cuomo has so far impressed us with his stance on fiscal discipline in the Empire State. These three states impose tax rates at or near the highest in the nation and about twice the national average.
New York City mayor Michael Bloomberg once called Manhattan a “luxury good,” meaning that people are willing to pay a premium to live there. The pols in Sacramento say much of the same thing about living in the Golden State. But what these jurisdictions are discovering is that there are limits. The rich will pay more to live in Santa Barbara or Manhattan penthouses for sure, but not hundreds of thousands or even millions of dollars more—compared to the tax savings of living and running their business in Austin, Palm Beach, Nashville, Seattle, or countless other cities in states where there is no income tax at all. And, again, when the rich escape, they often take more than their own direct tax payments. They also take their businesses and jobs with them. That is the collateral damage high tax rates have on the middle class and poor.
The result of these high tax rates has not been to balance state budgets or improve the financing of vital state services. Far from it. You cannot balance the budget on the backs of 1 percent of the most productive citizens of a state. They will leave, and as the 2010 census points out, they are leaving. The goal should be to bring them back, not drive them away.