Friday, December 25, 2009

Killing the golden goose

On Jon Weinstein's facebook page, he makes this statement:

Sometimes facts can be inconvenient... Check out this article by a non-partisan group that shows Maryland's millionaires are not fleeing the state like some would like us to believe.

He is referring to Maryland's "millionaire tax", which is a 1.5% extra tax on income over a million dollars. When the tax was imposed for 2008, there were 30% fewer millionaire taxpayers than in the previous year. Some people have used this to suggest that millionaires are fleeing the state to avoid the tax, but Jon points to an article which essentially says that this is probably due to a general decline in economic conditions as opposed to millionaires fleeing the state.

The incorrect conclusion to draw from this, which I am concerned that Jon has drawn, is that it's OK to have the rich pay more than their fair share because the rich will just grin and bear it. He is oblivious to any unintended consequences.

This article points to another type of millionaire tax, one that may be used to finance whatever sort of "health care reform" politicians are able to concoct (hmmm, the rich are asked to pay for a whole lot of crap, eh?). It also lists three inconvenient facts on why it is bad policy to douse the wealthy in additional tax burden:

The proposed millionaire surtax is politically attractive because its direct burden would fall on a very small group, roughly 0.3 percent of the population. Moreover, this group is extremely wealthy and could undoubtedly afford to pay additional taxes. For three reasons, however, the proposed surtax would be bad tax policy.

First, it would significantly increase marginal tax rates for the affected households, giving them greater incentives to reduce their taxable income through various avoidance strategies. Even with moderate responsiveness to incentives, the revenue generated by the surtax would be significantly smaller than the burden that it would impose on affected taxpayers.

Second, the surtax would significantly increase the marginal tax rate on saving and investment by the affected households, whether done through corporate or noncorporate firms. The impact would be magnified because these households, despite their small numbers, account for a large portion of national saving. The resulting drag on capital accumulation would lower real wages for workers throughout the economy.

Third, the proposed surtax reflects an unsustainable approach to tax and fiscal policy. As commentators across the political spectrum have recognized, the existing fiscal imbalance cannot be addressed without imposing sacrifices on a broad segment of the population. Any new spending programs, such as those in H.R. 3962, will impose additional burdens. By linking these programs to a tax imposed on only 0.3 percent of the population, the bill obscures that fiscal reality. If the programs in H.R. 3962 are worthwhile, they are worth paying for in an open and broad-based manner.

Beware of any politician who wants to cut open the golden goose to get more golden eggs.


Anonymous said...

And just where do you think those annual cash flows of one million came from? Distribution of wealth, friend, and quite frequently not as legit as you would hope.