Thursday, July 01, 2010

Bloomberg's Tax Sensitivity

We agree with Mike Bloomberg on taxing hedge fund managers. As Daily Politics reports: "I think it’s the bet thing that ever happened to Connecticut,” he quipped, stone-faced. “I can’t imagine why every hedge fund wouldn’t pick up and move.” Bloomberg has warned before that taxing the rich will hurt the local economy, but said the hedge fund industry is particularly vulnerable because “hedge funds are a bunch of desks with terminals on them. They could go anyplace. We’ve lost a lot of business to Connecticut and this would send more of them.”

But we also agree with the lone commenter to the post-someone who points out how the mayor's sensitivity sings with a distinctively upper class accent: "But the middle class don't leave the city too? Oh right: Bloomberg doesn't care. (It's one reason he's so pro-immigrants: to replace the millions of people he ran out of this expensive ghetto.)"

The high tax environment only seems to roil Mike when his own classmates are targeted-as we have pointed out before, here, here and here. And while the mayor tails at the counterproductivity of these tax the rich schemes, it's fascinating to observe the blinders he puts on when it comes to understanding and addressing the motivating rationale for the taxers-the need to fund the ever expanding Leviathan that 

Controlling taxes-and the concomitant exodus of tax avoiders-is kind of like pest control. While poisoning is always a nice idea, it's usually a more efficient approach to eliminate the food source. So, if you want to reduce the tax burden, than the best approach is to reduce the the size and scope of the insatiable pest. As for the mayor's Tiffany tunnel vision, he seems to be saying that taxing the hedge fund managers is a bad idea because of their mobility-leaving the impression that it's a better idea to burden the less mobile-because it has a more practical benefit for the feeding of the government monster.

But maybe not. Is it perhaps true that Mike Bloomberg has a familial affinity too the hedge funders that gives him one of those hammer to the knee kind of reflexive reactions when a tax is imposed on the upper crust? Certainly that is the only time we ever experience high dudgeon from littler Mikey.

But give the stopped clock his due-and, as the NY Post reports, it's likely that the tax will have results that are as truly counterproductive as the mayor says: "Next stop, Greenwich! Even as New York lawmakers geared up to slam out-of-state hedge-fund managers with $50 million in new taxes, Connecticut Gov. Jodi Rell was rolling out the welcome mat for the super-rich executives. "I would like to convey a very simple, yet heartfelt, message: Connecticut welcomes you!" the Republican executive declared in a letter to the New York Hedge Fund Roundtable. "I can assure you Connecticut has been pursuing and will continue to pursue a much more enlightened approach to job creation and retention and economic development," Rell continued."

And the exodus will continue the more NY makes it less hospitable for the wealthy: "Connecticut's tax rate tops out at 5 percent, while top earners in the Big Apple face a combined city-state tax of nearly 13 percent. Another plan to eliminate a tax credit for city residents would effectively result in a 6 percent hike for city residents who earn more than $500,000 a year."

But be careful, the California here I come budgeting is a bill that will soon come due. When it does, hedge fund managers will not be the only rats leaving the sinking ship. We"ll give Governor Rell-courtesy of the NY Post, the last word: "As lawmakers in Albany consider a proposal to vastly increase the tax liability of hedge-fund professionals who work in New York -- many of whom have already wisely decided to live in Connecticut -- I would like to convey a very simple, yet heartfelt, message: Connecticut welcomes you!"