Tuesday, May 18, 2010

Behind the Times

Greg David has a thoughtful critique of the NY Times' call for higher taxes on the wealthy to balance NY State's budget: "The editorial page of The New York Times is a strong and steadfast voice for the kind of structural reforms that might make state government more responsive. When it comes to budget and economic issues, it isn't as consistent, which was demonstrated Saturday when the Times called for a tax increase on the rich. Here's the offending paragraph:

"To spread the pain fairly, (Assembly Speaker) Silver should be promoting luxury taxes, sales of wine in grocery stores and a fat tax on sodas. Ideally, New York's income taxes should be made fairer. But this is not a state government that has the time or will to do the hard overhaul. Even a small short-term income tax surcharge on the rich would help."

But David points out that the Times suffers from amnesia: "The most obvious problem is that the Times appears to have forgotten that such a tax increase was passed last year! Under the so-called "millionaire's'' tax, families with incomes starting at $300,000 saw their state income tax rate increased to 7.85%. City residents in that category now pay a combined tax rate of 10.5%. (The higher rate affects individuals at $200,000.)"

And last year's tax brought a less than spectacular return-disappointing those who expected a bigger haul. And, as the WSJ pointed out last year, we already have the highest taxes in the country. And Speaker Silver's defense of the concept-that it didn't hurt New Jersey-rings kind of hollow today: "Mr. Silver thinks he can squeeze more from these folks without any economic harm, arguing that recent income tax hikes didn't hurt New Jersey. (Yes, the pols in New York actually hold up New Jersey, whose economy and budget are also in shambles, as their role model.)"

But it actually has: "The better comparison is how New Jersey compared to the rest of the nation. According to the study's own data, over the same period the U.S. saw an increase of 76% in half-millionaire households. E.J. McMahon, a budget expert at the Manhattan Institute, calculates that New Jersey lost more than 4,000 high-income taxpayers after the tax increase."

And McMahon makes the larger point about how counterproductive this all is: "Economists and tax-policy analysts have long recognized a link between taxpayer behavior and changes in marginal rates, especially in higher income brackets, where taxpayers have more control over the timing and nature of their incomes. When rates rise sharply, taxpayers respond by working and earning less, by shifting their “domicile” (or main residence for tax purposes) to lower-tax jurisdictions, and by using legal strategies to shift or shelter income in tax-exempt investments. Conversely, when marginal rates fall, upper-bracket taxpayers have less incentive to hide or shift income."

And, as David tells us, the expected expiration of the Bush tax cuts is not a good deal for New York: "•When the Bush taxes cuts expire at the end of this year, the combined federal, state and local tax on such people in New York City will be at least 52% and more than 60% when social security and Medicare taxes are factored in...Temporary tax hikes will merely worsen the problem in future years. The millionaire's tax was originally enacted for three years. How long with the next increase be for? And does the Times really think the economic rebound will be so great as to restore revenues by then? (Actually, they have previously made it clear they know the answer is no)."

All around the country the movement is growing to reduce the size and scope of government-and the taxes that are needed to support the edifice. NY, in trying to buck this trend, will hasten its own California fool's gold rush; and the wallet we lighten will be our own state treasury's.