Why the rich people are packing their bags

“President Obama believes America’s wealthiest households have become too wealthy and that the best way to ‘remedy’ this situation is to increase their federal tax burden,” Michael Franc of The Heritage Foundation wrote back on May 18. (www.heritage.org/research/taxes/bg2271.cfm)

In a message accompanying his Fiscal Year 2010 budget, Mr. Obama explained: “For the better part of three decades, a disproportionate share of the Nation’s wealth has been accumulated by the very wealthy. Yet, instead of using the tax code to lessen these increasing wage disparities, changes in the tax code over the past eight years exacerbated them.”

In fact, IRS figures show that the top 5 percent of wage earners already pay 60 percent of total income taxes, while the bottom 50 percent of income earners pay virtually zero. If a lot of Americans continued to grow rich and invest in new job creation despite such an unequal levy, how is that bad?

Never mind. Mr. Obama and his congressional Democrats still believe the pie should be cut into equal pieces — the hard-working surgeon or engineer or factory owner making no more than the schoolmarm who can’t spell or the guy who lives under the bridge. So, whether or not their proposals will really generate enough to “pay for” their ambitious plans to socialize medicine and ban fossil fuels, “equalization” takes on a life of its own.

According to figures compiled by the U.S. Office of Management and Budget on May 8 of this year, Mr. Obama proposes to

  1. Reinstate the 36 percent and 39.6 percent personal income tax rates (up from the current rates of 33 percent and 35 percent) for taxpayers earning more than $250,000 (married) and $200,000 (single);
  2. Reinstate the personal exemption phase-out and limitation on itemized deductions for those taxpayers earning over $250,000 or $200,000, respectively; and
  3. Increase the top rate on capital gains and dividends from 15 percent to 20 percent for those taxpayers earning more than $250,000 or $200,000, respectively.

Altogether, the White House OMB projected those changes would raise taxes on “wealthy” Americans by $636.7 billion over the next decade, with the increase projected to start at $28.4 billion in 2011 and rise quickly to $49 billion in 2012, $58.1 billion in 2013, and $98.6 billion by 2019.

All money “the rich” will no longer have available to invest in a new pizza joint or software venture. But don’t worry; the government will use it to make sure no bureaucrat in charge of “diversity” ever goes without a “step raise,” a gold-gilt tax-paid health plan, or a month-long paid summer vacation.

And it now appears that THOSE “tax-the-rich” plans were just for starters. Also being bandied about is elimination of the Social Security “cap” — the level beyond which additional wages are no longer subject to Social Security taxes, under the established and perfectly sensible rationale that there’s also a cap on how high retirement benefits can rise under the program.

Eliminating the tax cap will complete the process of turning the federal retirement pension program into an outright wealth transfer scheme, since wealthy conscripts into the system will never be able to get all their “contributions” back, even by living past 120.

Democrats including Mr. Obama also seek a jacked-up death tax, which punishes farm and small-business families, often requiring them to sell the hard-won family enterprise just to pay the federal taxes that accrue on a “transfer by death.”

And — if you haven’t heard enough — “House Democrats at work on health legislation are narrowing in on an income tax surcharge on the highest-paid wage earners to help pay the cost of subsidizing insurance for the 50 million who lack it,” The Associated Press reported this week.


As discussed by the tax-writing House Ways and Means Committee, the new surtax would apply to individuals with adjusted gross income of more than $200,000 and couples over $250,000, according to officials involved in the discussion, who spoke to The AP on condition of anonymity because this vital public business is being done in secret.

In addition, “key lawmakers” were expected to call for an additional new tax or fee on struggling small employers who offer no health benefits, equal to a percentage of their workers’ salaries — thus creating yet another incentive to lay ’em off and hire no more.

Rep. Shelley Berkley, a Democrat from Nevada and a member of the panel, said the proposed surtax on high-income taxpayers appealed to her and others as a way to avoid a “nickel-and-dime” approach involving numerous smaller tax increases.

Yes, holding off the crying brats while breaking into the INDIVIDUAL little piggy banks can become so tedious, can’t it?

Leaving aside the moral question of whether all a “wealthy” person’s earnings really belong to folks like Mr. Obama and Ms. Berkley, who can arbitrarily decide how much we “deserve” to retain and how much shall be seized and “spread around,” do such tax hikes even produce the revenues their sponsors hope for?

Generally not.

“As state tax revenues plunge, politicians are attempting to increase spending and cover budget deficits by imposing ‘sin and millionaire taxes,’ ” notes blogger Bill Zielinski.

But “Failed attempts by the state of Maryland to cover their budget deficit with ‘sin and millionaire taxes’ should be a textbook lesson to other states that this policy is counterproductive,” Mr. Zielinski reports, as “Large tax increases have resulted in lower than expected tax revenues.”

Maryland recently doubled its cigarette tax, from $1 to $2 a pack. In Fiscal Year 2007, the $1 cigarette tax brought in $269.1 million in revenue. In proposing the increase, Governor Martin O’Malley estimated the increase would bring in $255 million a year — a 95 percent revenue increase.

But Maryland’s 100 percent tobacco tax increase is now resulting in a revenue increase of only 51 percent. Smokers either quit or started getting their tobacco elsewhere.

Meantime, “Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy,” Mr. Zielinski reports. “Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3 percent of filers were ‘willing and able to pay their fair share.’ The Baltimore Sun predicted the rich would ‘grin and bear it.’ ”

One year later, nobody’s grinning. Instead, fully one-third of Maryland’s millionaires have simply disappeared from the tax rolls.

“In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April,” Mr. Zielinski reports. “This year there were 2,000, which the state comptroller’s office concedes is a ‘substantial decline.’ On those missing returns, the government collects 6.25 percent of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.”

And “Maryland is not alone in pursuing high income taxpayers, despite the documented futility of such action,” Mr. Zielinski concludes. “The highest tax states are consistently losing population as taxpayers vote with their feet, leaving high tax states with less jobs, business and income.”


Arthur Laffer and Stephen Moore documented that trend in a recent Wall Street Journal article, citing research from Richard Vedder of Ohio University, reporting that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states including California, New Jersey, New York and Ohio and relocated mostly to the nine states with no income tax, including Florida, New Hampshire, Texas and Nevada. “We also found that over these same years the no-income tax states created 89 percent more jobs and had 32 percent faster personal income growth than their high-tax counterparts,” Mr. Laffer reports.

Hm. Any indication there of why Mr. “Soak-the-Rich” Obama’s national economy may still be foundering?

Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, in New Jersey, and in New York. Over the period 2002-2005, in each of these states, the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes relative to the national average.

Take New Jersey — please. In the early 1960s, the state had no state income tax and no state sales tax. It grew rapidly and ran budget surpluses. Today its income and sales taxes are among the highest in the nation, it suffers from perpetual deficits, and its schools rank among the worst in the nation. “Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State,” Messrs. Laffer and Moore report. “People are fleeing the state in droves.”

Tax-lovers will likely respond, “Aha, but moving from Connecticut or New Jersey to New Hampshire or Nevada is one thing. We’re talking about piling vast new tax burdens on those earning $200,000 or more, NATIONWIDE. There’ll be no way to escape THAT. It’s not like they can avoid our net by closing down their businesses or moving themselves or their money or their manufacturing operations out of the country, entirely!

Really? Wanna bet?

4 Comments to “Why the rich people are packing their bags”

  1. Eric C. Sanders Says:

    I’d suggest the taxers of Connecticut and New Jersey (and perhaps the White House) spend a few months fact-finding in Sweden. I understand that the most productive Swedes take inordinately long unpaid vacations as fringe benefits: they enjoy the leisure, lose no health coverage, and reduce their tax bills. Maybe it’s a global urban legend – but it certainly makes sense – if you can’t move to a freer state.

  2. Jerry A. Pipes Says:

    Great essay, Vin! Atlas indeed appears to be shrugging.

  3. a Duoist Says:

    There is in Mr. Obama a mind-set which honestly believes that increasing the cost of government is a boon to the economy and that taxing productivity is more fair than taxing consumption. A VAT cannot be too far away with such a mind-set, even though, like gambling, it is regressive.

  4. Starchild Says:

    As usual Vin, your writing is hard-hitting and well-researched. I wish you would have put a bit more emphasis however on the fact that it is the bureaucrats, aka the public employee unions, politicians, etc., who largely benefit from Obama-style “class warfare,” not the poor in whose name these tax-the-rich measures are usually passed.

    When DeTocqueville wrote his famous observations of the United States from a European perspective in “Democracy In America” back in the 1800s, he noted the broad degree of economic equality that existed here. But as government has grown by leaps and bounds in the United States over the past century — with some significant positive exceptions such as the elimination of laws discriminating on the basis of race, gender, sexual orientation, etc. — the gap between the poor and the wealthy has also grown. I don’t think this is a coincidence.

    Libertarians and fellow defenders of liberty should not overlook the fact that despite the wealthy paying the bulk of income taxes and a few other similar misleading statistics, government is most oppressive of those on the bottom of the economic ladder. It keeps them poor in numerous ways, from “dumbing down” government schooling, denying economic opportunity via licensing, wage control laws, etc., to creating a destructive cycle of dependency on government while discouraging self-reliance. And of course poor people are much more likely to be among those incarcerated for a host of illegitimate reasons such as drug possession, undocumented migration status, being a sex worker, etc.

    It is important that we understand this and that our rhetoric reflects this reality, so that our agenda and sympathies are aimed at helping those who are most victimized by the State, and so that enemies of freedom cannot drive a wedge between us and the masses by making us out to be defenders of wealth and privilege and lacking compassion for ordinary people.