Thursday, January 22, 2009

More on WFP's Tax Mania

EJ McMahon called our attention to his own post on the personal income tax fracas. Here's the money quote, referring to a graph that highlights the trend on taxes paid by high income New Yorkers: "As shown, the share paid by the wealthiest one percent peaked at 41 percent of all New York State income taxes in 2007. The projected drop in the share starting in 2008 reflects the Budget Division’s expectation of a sharp, ongoing drop in incomes among the wealthiest New Yorkers. But even with the steep downturn, the share of taxes paid by the wealthiest New Yorkers is expected to be higher than the 30 percent level of 1996 —when the top rate was higher." (emphasis added)

So, as has been said, everyone's entitled to their own opinion, just not to their own set of facts-and the NY trend here mirrors the national one: "And on the federal level, there is no question that the wealthiest Americans have been paying a rising share of income taxes for most of the past 30 years, despite tax rate cuts during that period."

So the WFP folks are plain wrong about their notion of fair share-and, when seen in the light of all of the evidence, it amounts to little more than the standard "soak the rich" nostrum that the Pete Seegers of the world have been advocating for years. That this is counterproductive is also revealed by the evidence.

Here's how McMahon explains it: "This seeming paradox—lower tax rates resulting in larger tax shares for the wealthiest Americans—confirms one of the principal supply-side arguments advanced for President Ronald Reagan’s tax cut package in the early 1980s. As Reagan expected, taxpayers in the highest brackets responded to lower tax rates by working more, taking more financial risks and sheltering less of their income. Amid a general growth in affluence, the booming stock market, rising real estate values and rising compensation for corporate executives also gave an extra push to personal wealth in the top tax brackets."

What New York has done-at both the state and city levels-is to allow public sector spending and expansion to go forward without regard to the consequences; and now the fiscal chickens have come home to roost: "New York’s growing dependence on high-income taxpayers is a major reason why the Empire State is now in such big fiscal trouble. Schneiderman and his fellow lawmakers budgeted huge, unsustainable spending increases when incomes among the wealthiest taxpayers were soaring, even though the trend clearly couldn’t go on forever."

So what's the end game here for the WFP and it allies? The maintainence of a public sector that supports the jobs of its constituent unions-all of which is certainly righteous politically, but may prove to be a killing of the goose that laid the golden egg; as unsupportable government drains the energy from any potential economic recovery.

But the "millionaire's tax" is a ruse; and, as we have said before, the tax threshold is never static-the legislature has its sights set on a whole lot of folks that you wouldn't characterize as millionaires: "The tax hike now being discussed in the Capitol would be much larger and further reaching, reportedly kicking in at taxable incomes as low as $250,000. That would make even more damaging to the state’s long-term recovery prospects, especially given the likelihood that a state tax hike will be compounded, sooner or later, by a sharp increase in federal tax rates."

So let's hope that the tax moderates are able to rein in the soakers; The issue isn't about fairness, it's about keeping the state's economic engine running at its greatest peak efficiency. The governor is right, this is the worst time to cede policy making to the redistributors.