The Price of Taxing the Rich
"Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.
New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy (see chart above)—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.
Arriving at a time of greatly increased public spending, this reversal highlights the dependence of the states on the outsize incomes of the wealthy. The result for state finances and budgets has been extreme volatility."
Here's a related item:
"In a letter sent March 21 to Gov. Pat Quinn, Caterpillar chief executive officer Doug Oberhelman said officials in at least four other states have approached the company about relocating since Illinois raised its income tax in January."
"I want to stay here. But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest," Oberhelman wrote in the letter obtained Friday by the Lee Enterprises Springfield bureau. "The direction that this state is headed in is not favorable to business and I'd like to work with you to change that."
HTs: Pete Friedlander and Steve Bartin
21 Comments:
According to Citigroup, the USA is, in fact, a plutonomy--and economy driven by, and controlled by, the extremely wealthy.
I think this is one reason that QE 2 has been so successful. The DJIA has risen nicely, making the wealthy feel wealthier, and they are spending again.
Oddly enough, in the the 1960s, the top federal tax rate was 90 percent, and the economy roared ahead. I am sure that was a fluke.
"Oddly enough, in the the 1960s, the top federal tax rate was 90 percent, and the economy roared ahead. I am sure that was a fluke.
Benji says: "Don't bother me with facts, or persuasive arguments. I know what I know, and I won't be swayed by reason or logic."
How many actually paid at that rate, and how much revenue did that represent, in dollars and as a percent of total tax revenue?
You should be able to provide that information, and it should support your position that taxing the rich more is good policy.
The 90% rate was the top marginal income tax rate, not the base income tax rate. Millionaires only paid that rate on the LAST increment on money they earned, not on the first million they earned. They paid the same base rate as everyone else, then paid higher and higher incremental marginal rates until they reached the top rate, which was actually 91%, not 90%.
Combine that with all the loopholes that was in the code and you'll find that paying 91% was really rare.
But I'm sure you've heard all that before, as well as the fact that no matter how hard the government tries, the revenue produced from income taxes always hovers right at the same level of GDP.
Interestingly the WSJ article echos something Professor Mark has posted on this site many times, how people move in and out of various wealth groupings: 'Mr. Williams, a former economic forecaster for the state, spent more than a decade warning state leaders about California's over-dependence on the rich. "We created a revenue cliff," he said. "We built a large part of our government on the state's most unstable income group."'...
Hmmm, I see that the pseudo benny is making it up as he goes along again...
Note this silliness: "I think this is one reason that QE 2 has been so successful. The DJIA has risen nicely, making the wealthy feel wealthier, and they are spending again"...
Meanwhile people who do seem to know something about it all are a bit less optimistic...
From Zer0Hedge: Why You Should be Freaked Out About the Stock Market
This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it’s a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out. (there's a bit more)
Martins Feldstein is a favorite economist among conservatives. See below:
THE MAGIC OF THE MARKET
Quantitative Easing and America’s Economic Rebound
Martin Feldstein
2011-02-24
CAMBRIDGE – There is no doubt that the American economy rallied strongly at the end of 2010. But how much of that was due to the United States Federal Reserve’s temporary policy of so-called “quantitative easing”? And what does the answer mean for the US economy in 2011?
Until the fourth quarter of last year, the US economic recovery that began in the summer of 2009 was decidedly anemic. Annual GDP growth in the first three quarters of 2010 averaged only about 2.6% – and most of that was just inventory building. Without the inventory investment, the growth rate of final sales averaged less than 1%.
But the fourth quarter was very different. Annual GDP rose by 3.2% and growth of final sales jumped to a remarkable 7.1% year-on-year rate. True, much of that was due to a sharp decline in imports; but even the growth rate of final sales to domestic purchasers rose at a healthy 3.4% pace.
The key driver of the increase in final sales was a strong rise in consumer spending. Real personal consumer spending grew at a robust 4.4% rate, as spending on consumer durables soared by 21%. That meant that the acceleration of growth in consumer spending accounted for nearly 100% of the increase in GDP, with the rise in durable spending accounting for almost half of that increase.
The rise in consumer spending was not, however, due to higher employment or faster income growth. Instead, it reflected a fall in the personal saving rate. Household saving had risen from less than 2% of after-tax incomes in 2007 to 6.3% in the spring of 2010. But then the saving rate fell by a full percentage point, reaching 5.3% in December 2010.
A likely reason for the fall in the saving rate and resulting rise in consumer spending was the sharp increase in the stock market, which rose by 15% between August and the end of the year. That, of course, is what the Fed had been hoping for.
At the annual Fed conference at Jackson Hole, Wyoming in August, Fed Chairman Ben Bernanke explained that he was considering a new round of quantitative easing (dubbed QE2), in which the Fed would buy a substantial volume of long-term Treasury bonds, thereby inducing bondholders to shift their wealth into equities. The resulting rise in equity prices would increase household wealth, providing a boost to consumer spending.
To be sure, there is no proof that QE2 led to the stock-market rise, or that the stock-market rise caused the increase in consumer spending. But the timing of the stock-market rise, and the lack of any other reason for a sharp rise in consumer spending, makes that chain of events look very plausible.
As to the 90 percent top rate--there were loopholes, just as today. In general, however, you had to invest your money to avoid taxes.
In the 1960s, taxes fell more heavily on the wealthy than today. It was the right-wing, back then, that wanted to pay down the national debt, and were actually doing it. Think Senator Dirksen.
The right-wing into the 1950s was in favor of a very small military, and detested rural welfare.
The Dems, in contrast, favored military outlays (especially in rural areas, and rural welfare and infrastructure projects (think LBJ-FDR). Forgotten today is that the right-wing wanted to stay out of WWII (think Senator Taft) and even after Pearl Harbor, wanted to stay out of Europe. FDR was allowed to declare war on Germany only after they declared war on us (after Pearl Harbor by several days).
In the ensuring decades, the Dems supported the 64 Civil Rights Act and other social liberal programs, as the rural area and military drifted over into the R-Party. Then the R-Party became the constant tub-thumpers for more military outlays and rural welfare projects. King Ethanol comes to mind.
It is a fascinating history.
juandos
"Note this silliness: "I think this is one reason that QE 2 has been so successful. The DJIA has risen nicely, making the wealthy feel wealthier, and they are spending again"..."
yeah, I noticed it. It left me speechless for a moment & I never did think of an adequate response. Maybe it doesn't deserve one.
"The resulting rise in equity prices would increase household wealth, providing a boost to consumer spending."
What nonsense. This is just more smoke and mirrors. Don't stockholders need to sell their stock to spend the proceeds, or, are they borrowing against it? If they sell, what does that selling do to prices on the stock market?
Somebody, (or somebody and the people who believe this nonsense), have their heads up where it's dark.
"To be sure, there is no proof that QE2 led to the stock-market rise, or that the stock-market rise caused the increase in consumer spending. But the timing of the stock-market rise, and the lack of any other reason for a sharp rise in consumer spending, makes that chain of events look very plausible."
Correlation is causation, eh Benji?
Some people claim that's true for climate also. You are in good company.
"Martins Feldstein is a favorite economist among conservative"...
You need to do a little homework (as usual) pseudo benny...
Try this article and this article...
"It is a fascinating history."
Yeah, mostly fiction. for instance, this:
"Dems supported the 64 Civil Rights Act "
Actually more Repubs than Dems in congress, as a percentage, voted for the unconstitutional Civil Rights Act of 1964. You are also forgetting the Democratic Senate filibuster of the act, led by Dem Sen. Robert Byrd of WV.
Remember Govs. Wallace, Faubus, Hollings, Burnet? And who could forget Commissioner "Bull" Conner, who used firehoses and police dogs against peaceful demonstrators in Birmingham in 1963?
You guessed it, all Democrats.
So, what the F*** are you talking about?
But, enough of this off-topic fun. Let's get back to the subject of high tax rates.
"As to the 90 percent top rate--there were loopholes, just as today. In general, however, you had to invest your money to avoid taxes.
In the 1960s, taxes fell more heavily on the wealthy than today."
"...and STILL the economy boomed."
I know, you already asserted that, but I'm still waiting for your reference to some actual information, preferably in the form of numbers, to support it.
"In the ensuring decades, the Dems supported the 64 Civil Rights Act..."...
On which planet did this happen pseudo benny?
Try a dose of reality instead...
"Yeah, mostly fiction"...
Exactly Ron H!
Or, this nonsense:
".At the annual Fed conference at Jackson Hole, Wyoming in August, Fed Chairman Ben Bernanke explained that he was considering a new round of quantitative easing (dubbed QE2), in which the Fed would buy a substantial volume of long-term Treasury bonds, thereby inducing bondholders to shift their wealth into equities. The resulting rise in equity prices would increase household wealth, providing a boost to consumer spending."
Translation:
"Bernanke said he was planning to create a ton of money out of thin air, thus slashing the value of the dollar, so that the dumb masses would think they were wealthy, and start spending more.
As all good Keynesians know, this "stimulus" of demand should cause silly producers to think they should start producing more, even though consumers really had no more money than before, only a greater number of pieces of paper.
"Benji", ... the Dems supported the 64 Civil Rights Act ..."
You apparently know as little about the Civil Rights movement as you do about everything else. The Democrats were the pro-slavery party. The party of segregation and Jim Crow. They filibustered most of the early Civil Rights legislation put forward by Republicans and the Eisenhower administration. Here's a short history:
June 2, 1924 - Republican President Calvin Coolidge signs bill passed by Republican Congress granting U.S. citizenship to all Native Americans
October 3, 1924 - Republicans denounce three-time Democrat presidential nominee William Jennings Bryan for defending the Ku Klux Klan at 1924 Democratic National Convention
June 12, 1929 - First Lady Lou Hoover invites wife of U.S. Rep. Oscar De Priest (R-IL), an African-American, to tea at the White House, sparking protests by Democrats across the country
August 17, 1937 - Republicans organize opposition to former Ku Klux Klansman and Democrat U.S. Senator Hugo Black, appointed to U.S. Supreme Court by FDR; his Klan background was hidden until after confirmation
June 24, 1940 - Republican Party platform calls for integration of the armed forces; for the balance of his terms in office, FDR refuses to order it
September 30, 1953 - Earl Warren, California’s three-term Republican Governor and 1948 Republican vice presidential nominee, nominated to be Chief Justice; wrote landmark decision in Brown v. Board of Education
November 25, 1955 - Eisenhower administration bans racial segregation of interstate bus travel
March 12, 1956 - Ninety-seven Democrats in Congress condemn Supreme Court’s decision in Brown v. Board of Education, and pledge to continue segregation
June 5, 1956 - Republican federal judge Frank Johnson rules in favor of Rosa Parks in decision striking down “blacks in the back of the bus” law
November 6, 1956 - African-American civil rights leaders Martin Luther King and Ralph Abernathy vote for Republican Dwight Eisenhower for President
Continued...
September 9, 1957 - President Dwight Eisenhower signs Republican Party’s 1957 Civil Rights Act
September 24, 1957 - Sparking criticism from Democrats such as Senators John Kennedy and Lyndon Johnson, President Dwight Eisenhower deploys the 82nd Airborne Division to Little Rock, AR to force Democrat Governor Orval Faubus to integrate public schools
May 6, 1960 - President Dwight Eisenhower signs Republicans’ Civil Rights Act of 1960, overcoming 125-hour, around-the-clock filibuster by 18 Senate Democrats
May 2, 1963 - Republicans condemn Democrat sheriff of Birmingham, AL for arresting over 2,000 African-American schoolchildren marching for their civil rights
September 29, 1963 - Gov. George Wallace (D-AL) defies order by U.S. District Judge Frank Johnson, appointed by President Dwight Eisenhower, to integrate Tuskegee High School
June 9, 1964 - Republicans condemn 14-hour filibuster against 1964 Civil Rights Act by U.S. Senator and former Ku Klux Klansman Robert Byrd (D-WV), who still serves in the Senate
June 10, 1964 - Senate Minority Leader Everett Dirksen (R-IL) criticizes Democrat filibuster against 1964 Civil Rights Act, calls on Democrats to stop opposing racial equality. The Civil Rights Act of 1964 was introduced and approved by a staggering majority of Republicans in the Senate. The Act was opposed by most southern Democrat senators, several of whom were proud segregationists—one of them being Al Gore Sr. Democrat President Lyndon B. Johnson relied on Illinois Senator Everett Dirksen, the Republican leader from Illinois, to get the Act passed.
August 4, 1965 - Senate Republican Leader Everett Dirksen (R-IL) overcomes Democrat attempts to block 1965 Voting Rights Act; 94% of Senate Republicans vote for landmark civil right legislation, while 27% of Democrats oppose. Voting Rights Act of 1965, abolishing literacy tests and other measures devised by Democrats to prevent African-Americans from voting, signed into law; higher percentage of Republicans than Democrats vote in favor
Benji
More on this one:
"June 24, 1940 - Republican Party platform calls for integration of the armed forces; for the balance of his terms in office, FDR refuses to order it"
In case you're wondering how the armed forces came to be segregated in the first place, you can thank Dem (progressive) President Woodrow Wilson, who not only segregated the armed forces, but most federal offices. As I'm sure you know, we can also thank him for such other wonders as the Federal Reserve, Federal Trade Commission, Federal Farm Loan Act, and best of all the personal progressive income tax.
So, I ask again: when you say:
"Dems supported the '64 Civil Rights Act"
Just what the f*** are you talking about?
Taxing the rich has more downside than taxing people who have no money.
States that tax excessively will also face problems...
In a letter sent March 21 to Gov. Pat Quinn, Caterpillar chief executive officer Doug Oberhelman said officials in at least four other states have approached the company about relocating since Illinois raised its income tax in January...
Maryland, like always, deserves an asterisk beside that 5.5% top rate. Every county in Maryland has a county income tax, collected by the state. The 5.5% is only the state rate-- most counties have a 3 or 3.2% county rate on top of that.
During the period of 90% top marginal tax bracket, it turns out the average tax percentage paid by the rich was only slightly higher than today. There was massive tax avoidance and outright tax fraud.
In 1938, long term cap gains were set at 15%, so this was a source of low-tax income for the rich.
Also without computers, the IRS had a hard time tracking down rich fraudsters, and there was little political will for them to do so anyway.
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