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Economic death and millionaire taxes

by David Siro­ta
San Fran­cis­co Chron­i­cle

For most of us, Ben­jamin Franklin’s words in 1789 still apply: “Noth­ing is cer­tain but death and tax­es.”

How­ev­er, mil­lion­aires, by def­i­n­i­tion, are not most of us. While they can’t stave off the grim reaper, they can per­suade law­mak­ers to shield them from the tax­man and bal­ance bud­gets on the backs of every­one else.

That’s what’s going on in rev­enue-starved states right now: gov­er­nors are prepar­ing to slash mid­dle-class pro­grams and are resist­ing calls to raise tax­es on the wealthy. Nowhere is this class war more pro­nounced than in New York — the home of the finan­cial thieves who killed the econ­o­my. Hav­ing halved its top tax rate over the last three decades, New York today faces a $15.4 bil­lion deficit. In response, Gov. David Pater­son, a Demo­c­rat, might have asked his state’s Gor­don Gekkos to pay high­er tax­es, espe­cial­ly con­sid­er­ing the idea’s pop­u­lar­i­ty in polls and the news that Wall Street’s elite are still swim­ming in mon­ey. Indeed, accord­ing to CBS News, the alleged­ly belea­guered finan­cial indus­try is so flush with cash it plans to dole out $14 bil­lion in exec­u­tive bonus­es this year.

Yet, far from forc­ing rob­ber barons to pay their fair share, Pater­son told the New York Times that tax­ing mil­lion­aires is “the last place you want to go.” Instead, he pro­pos­es to pun­ish Joe and Jane Six-pack by hik­ing the tax­es and cut­ting the pro­grams that dis­pro­por­tion­ate­ly impact them. Specif­i­cal­ly, he wants to increase sales tax­es, col­lege tuitions and licens­ing fees and slash edu­ca­tion and low-income health pro­grams.

Pater­son defend­ed his pro­pos­als by telling PBS’ Bill Moy­ers “that when you tax the wealthy in the down­turn of an econ­o­my, you have an auto­mat­ic link of a loss of job oppor­tu­ni­ties and then a loss of pop­u­la­tion.” The ratio­nale sounds intel­li­gent­ly prag­mat­ic — until you peruse the rel­e­vant data.

When New Jer­sey recent­ly raised tax­es on the wealthy, Prince­ton Uni­ver­si­ty researchers found that most of those who lat­er left the state moved to places with high­er tax­es, mean­ing there is no causative link between levies on the rich and res­i­den­tial flight. Like­wise, when New York tem­porar­i­ly raised high-income tax­es after 9/11, the state added 127,000 jobs, mean­ing no link exists between high­er tax­es on the rich and job loss.

Dur­ing times of sur­plus­es, gov­er­nors could get away with the unsub­stan­ti­at­ed non­sense Pater­son is ped­dling. But now, 43 states con­front short­falls, and because states can­not run deficits, the dol­lars and sense of these argu­ments mat­ter. Law­mak­ers must choose what pol­i­cy will cre­ate the best chances for eco­nom­ic recov­ery: spend­ing cuts or tax increas­es, and if the lat­ter, on whom?

The answer isn’t rock­et sci­ence. As Nobel Prize-win­ning econ­o­mist Joseph Stiglitz says, “Reduc­tions in gov­ern­ment spend­ing on goods and ser­vices (are) like­ly to be more dam­ag­ing to the econ­o­my in the short run than tax increas­es focused on high­er-income fam­i­lies.”

That’s because gov­ern­ment cuts auto­mat­i­cal­ly decrease the con­sump­tive spend­ing pro­grams that broad­ly stim­u­late the econ­o­my where­as tax increas­es, when aimed at the wealthy, more often impact funds socked away in sav­ings.

“The more that the tax increas­es (are) focused on those with low­er propen­si­ties to con­sume (i.e., the rich),” Stiglitz notes, “the less dam­age is done to the weak­ened econ­o­my.”

Incred­i­bly, Pater­son acknowl­edges how destruc­tive his bud­get is, admit­ting that his own “edu­ca­tion cuts are dra­con­ian, the health care cuts are pro­hib­i­tive [and] the tax­es that are being levied ... are not fair.”

So why would he — or any gov­er­nor — nonethe­less try to leg­is­late such idio­cy? Because mil­lion­aires are the ones who finance guber­na­to­r­i­al can­di­da­cies, and their cam­paign con­tri­bu­tions buy tax pro­tec­tion. The result is what anoth­er New York roy­al­ist promised.

“Only the lit­tle peo­ple pay tax­es,” said Leona Helm­s­ley — a doc­trine that will exac­er­bate this reces­sion if states keep mak­ing it true.


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