Why the Millionaire Tax Isn’t Working
Taxing the rich seemed like such a good idea earlier this year.
A record eight states have raised taxes on top earners this year, including Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin.
The idea, to paraphrase Willie Sutton, is that wealthy taxpayers are where the money is.
Or, we should say, where the money used to be. As state governments are discovering, their projections for the flood of cash that would pour into the public coffers from the wealthy are proving to be overly optimistic.
New York's governor said this week that revenue from the income-tax increases and other taxes enacted in April–the millionaire's tax central among them-are running about 20% less than anticipated.
So far this year, only half of about $1 billion in expected revenue from New York's 100 richest taxpayers has come in. The state budget office attributes the shortfall in large part to the losses by the rich during the recession.
Some have attributed the shortfall to wealthy New Yorkers who have fled the state because of the millionaire's tax. And there surely might be some of those.
But I would be more likely to agree with the state budget office: the rich aren't paying as much in taxes because they are less rich.
This sounds obvious. But rest assured, states will be shocked, shocked at the end of this year and early next that their revenue from the rich are falling short of projections. And that should be a lesson to Washington as it proposes higher taxes on the wealthy.
In the end, governments will have three choices when they discover the shortfall: raise taxes on the wealthy even more, raise taxes on everyone else, or cut spending.
How do you think they should make up the inevitable shortfall from taxing the wealthy? Or will there be shortfalls?
A record eight states have raised taxes on top earners this year, including Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin.
The idea, to paraphrase Willie Sutton, is that wealthy taxpayers are where the money is.
Or, we should say, where the money used to be. As state governments are discovering, their projections for the flood of cash that would pour into the public coffers from the wealthy are proving to be overly optimistic.
New York's governor said this week that revenue from the income-tax increases and other taxes enacted in April–the millionaire's tax central among them-are running about 20% less than anticipated.
So far this year, only half of about $1 billion in expected revenue from New York's 100 richest taxpayers has come in. The state budget office attributes the shortfall in large part to the losses by the rich during the recession.
Some have attributed the shortfall to wealthy New Yorkers who have fled the state because of the millionaire's tax. And there surely might be some of those.
But I would be more likely to agree with the state budget office: the rich aren't paying as much in taxes because they are less rich.
This sounds obvious. But rest assured, states will be shocked, shocked at the end of this year and early next that their revenue from the rich are falling short of projections. And that should be a lesson to Washington as it proposes higher taxes on the wealthy.
In the end, governments will have three choices when they discover the shortfall: raise taxes on the wealthy even more, raise taxes on everyone else, or cut spending.
How do you think they should make up the inevitable shortfall from taxing the wealthy? Or will there be shortfalls?
http://blogs.wsj.com/wealth/2009/09/25/why-the-millionaire-taxes-isnt-working/
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