The Heavy Price of Taxing the Rich

| April 5, 2011

I was raised by two neo-Marxist grandparents, left of the left, who staunchly preached the ideals of the Frankfurt School to me over dinner from age two.  After immigrating to the United States, my upbringing was molded by my socialist stepfather, a career academician whose friends included Michael Harrington.  Not even the political pragmatism of my center-left mother could persuade my stepfather to yield.  To him and many other Massachusetts wine-and-cheese ultra-lefties, the heavily progressive Scandinavian taxation systems are far too lenient on the affluent.

The state budget crises sweeping over the country are forcing local law makers to face grim austerity measures.   Very few enjoy fiscal cuts.  True, the subprime mortgage lending debacle catalyzed the economic contraction.   But before these hard times, another voice had already prophesied the perils of a heavily progressive tax system decades ago.  Brad Williams, a former economic analyst for the California State legislature, warned law makers of the Golden State the danger of reliance on the rich since the 90’s.  Mr. Williams’ warnings were published recently in the Wall Street Journal’s essay section: http://online.wsj.com/article/SB10001424052748704604704576220491592684626.html

Williams’ reasoning rises above the traditional rhetoric of us vs. them, haves vs. have-nots (Did you know 93% of millionaires in the United States are born into a family where NONE of the parents are millionaires, so most of them not only have to work hard, but have to work smart?  Not kidding, merely working hard is not sufficient, says Thomas Edison to the diligent candle-maker.)   Far from the often heard “innovation should be amply rewarded”, Williams’ warning is that as California, Maryland, and dozens of other states impose heavier state income taxes on the slimmest margin of residents to the right of the income distribution curve, the states’ ability to manage its daily operations became increasingly dependent on the well beings of this narrow spectrum.  In some states, the wage earners at the top 1% pay up to 43% of the state income tax.  The problem is that the incomes of this sector are also the most volatile of all : decreases of 30%, 45%, even up to 70% in income is commonplace.  The heavily progressive income tax system, currently in place in dozens of states across the country, while collects billions in good times, contracts violently to dimes in an economic bust as the one now.

Unlike Mr. Harrington, I no longer go to sleep at night worrying that somebody, somewhere, is having a good time.  To those who still do, take this advice from someone who has been inculcated by the left since the day he was born: it is time for you to grow up.