January 13, 2009

January 13, 2009 | Commentary on Taxes

Soak the Rich?: It's a Perilous Path for Democrats

[Obama's advisers] said no tax increases were included in the [stimulus] plan because it is focused on measures that create jobs. Obama aides have signaled that they will wait to let Mr. Bush's tax cuts for the wealthiest Americans expire in 2010, rather than try to repeal them right away.

- New York Times, January 4, 2009

Liberals who want to extort untold billions in new taxes from the "rich" have been mugged by economic reality.

The president-elect has quietly distanced himself from his campaign pledge to boost the tax burden of the wealthiest five percent of Americans. It's an implicit acknowledgment that increasing taxes on our most productive citizens will throttle job creation and delay economic recovery. So far, so good.

But even as they postpone their soak-the-rich agenda, Obama and the New Deal revivalists on Capitol Hill are readying a mind-boggling $1-trillion-plus "stimulus" package - as well as other budget-busting initiatives, such as universal health care. Ultimately, taxpayers will have to foot the bill for all of this, not to mention the grab-bag of "shovel ready" fitness centers, parking garages, baseball museums, mob museums, and music halls that Congress intends to fund as public works.

The unstated assumption behind the stimulus package is that Congress will recoup all this spending a few years down the line by strapping a hefty tax hike to the backs of a very small minority of "rich" Americans. Then, all will be well.

Yah. Sure it will.

Before Obama and his Capitol Hill allies open the spending floodgates even wider, they should study the ongoing saga in New York State. Empire State politicians recently tried this approach to budget balancing, and wound up scalded by the financial meltdown. It turns out that taxing the "rich" is tougher than the class warriors might think.

First, a little background.

Last August, the hyper-liberal New York State Assembly voted overwhelmingly to boost the state's top income tax rate on millionaires by as much as 1.75 percent, thereby jacking the top rate to 8.6 percent. Albany's green-eyeshades brigade estimated the tax hike would reap an extra $2.4 billion annually.

But as Wall Street cratered and all those multi-million-dollar bonuses evaporated, it dawned on Assembly Speaker Sheldon Silver (D.), the brains behind this tax hike, that it wasn't such a bright idea after all. "Because of what is happening to the New York economy," a Silver ally helpfully explained to New York Post columnist Frederic Dicker, "Shelly doesn't believe this is the time to be raising a tax on the wealthy."

With the Empire State's budget deficit now projected to exceed $15 billion -in the face of a constitutional requirement to balance the state budget - New York lawmakers are fighting a five-alarm fiscal fire. But rather than slash billions in wasteful spending (not long ago, the state's chief Medicaid investigator estimated that 40 percent of New York's Medicaid spending - about $20 billion annually - was fraudulent or "questionable"), the state's political class remains committed to raising taxes. And this time, they've trained their sights not on the barons of Wall Street but on Joe Sixpack.

Gov. David Paterson (D.) has drawn up a laundry list of 137 tax increases that target the creature comforts enjoyed by ordinary New Yorkers. Included are new or increased taxes on soft drinks, malt beverages, beer, wine, cigars, cable television service, music downloads, and - most unthinkable of all - a new tax on Knicks tickets.

"If anybody's contemplating leaving the state of New York," one Republican lawmaker groused, "this should push them over the top."


The lesson for Washington is this: The current economic climate is so dismal that what liberal theorists considered a modest tax increase on millionaires sent even limousine-liberal New Yorkers into a tizzy. From Manhattan's co-op canyons and the ritzy oceanfront palaces of the Hamptons came cries of bloody murder. And since they're the folks who host and attend political fundraisers, it quickly became more politically acceptable to raise taxes on Joe Sixpack's cigarettes and his kids' iPod downloads than on the earnings of hedge-fund managers.

The liberals' entire class-warfare edifice, it seems, rests on extremely thin ice. It's New York, New York, for heaven's sake. If you can't tax the filthy rich there, can you tax them anywhere?

Obama's tax-the-rich agenda is on even thinner ice. Unlike the lawmakers in Albany, he believes families with incomes as low as $250,000 (approximately four million households nationwide) qualify as "rich." Yet the overwhelming majority of these "rich" reside in states and congressional districts represented by his fellow Democrats. Obama may well discover that slapping new taxes on these 4 million households will give an unwanted political headache to those same liberal lawmakers whose votes will be required for its passage.

If the New York experience is any guide, Americans may already have reached the limits of politically acceptable taxation. Even before the financial meltdown, the national tax burden stood at about 19 percent of GDP, higher than the post-World War II norm and awfully close to the 20 percent level that has marked previous taxpayer revolts.

Lawmakers in Washington have displayed zero inclination to actually cut spending. And now we see that the politically acceptable default is to raise taxes on ordinary Americans.

Clearly, the incoming administration and its allies on Capitol Hill aim to spend literally trillions - trillions - of our tax dollars in the coming months without enacting any of the offsets that were promised so earnestly by their leadership.

Get ready, Middle America, for the largest, across-the-board tax increase in our history.

Mike Franc is Vice President for Government Relations at The Heritage Foundation.

[Obama's advisers] said no tax increases were included in the [stimulus] plan because it is focused on measures that create jobs. Obama aides have signaled that they will wait to let Mr. Bush's tax cuts for the wealthiest Americans expire in 2010, rather than try to repeal them right away.

- New York Times, January 4, 2009

Liberals who want to extort untold billions in new taxes from the "rich" have been mugged by economic reality.

The president-elect has quietly distanced himself from his campaign pledge to boost the tax burden of the wealthiest five percent of Americans. It's an implicit acknowledgment that increasing taxes on our most productive citizens will throttle job creation and delay economic recovery. So far, so good.

But even as they postpone their soak-the-rich agenda, Obama and the New Deal revivalists on Capitol Hill are readying a mind-boggling $1-trillion-plus "stimulus" package - as well as other budget-busting initiatives, such as universal health care. Ultimately, taxpayers will have to foot the bill for all of this, not to mention the grab-bag of "shovel ready" fitness centers, parking garages, baseball museums, mob museums, and music halls that Congress intends to fund as public works.

The unstated assumption behind the stimulus package is that Congress will recoup all this spending a few years down the line by strapping a hefty tax hike to the backs of a very small minority of "rich" Americans. Then, all will be well.

Yah. Sure it will.

Before Obama and his Capitol Hill allies open the spending floodgates even wider, they should study the ongoing saga in New York State. Empire State politicians recently tried this approach to budget balancing, and wound up scalded by the financial meltdown. It turns out that taxing the "rich" is tougher than the class warriors might think.

First, a little background.

Last August, the hyper-liberal New York State Assembly voted overwhelmingly to boost the state's top income tax rate on millionaires by as much as 1.75 percent, thereby jacking the top rate to 8.6 percent. Albany's green-eyeshades brigade estimated the tax hike would reap an extra $2.4 billion annually.

But as Wall Street cratered and all those multi-million-dollar bonuses evaporated, it dawned on Assembly Speaker Sheldon Silver (D.), the brains behind this tax hike, that it wasn't such a bright idea after all. "Because of what is happening to the New York economy," a Silver ally helpfully explained to New York Post columnist Frederic Dicker, "Shelly doesn't believe this is the time to be raising a tax on the wealthy."

With the Empire State's budget deficit now projected to exceed $15 billion -in the face of a constitutional requirement to balance the state budget - New York lawmakers are fighting a five-alarm fiscal fire. But rather than slash billions in wasteful spending (not long ago, the state's chief Medicaid investigator estimated that 40 percent of New York's Medicaid spending - about $20 billion annually - was fraudulent or "questionable"), the state's political class remains committed to raising taxes. And this time, they've trained their sights not on the barons of Wall Street but on Joe Sixpack.

Gov. David Paterson (D.) has drawn up a laundry list of 137 tax increases that target the creature comforts enjoyed by ordinary New Yorkers. Included are new or increased taxes on soft drinks, malt beverages, beer, wine, cigars, cable television service, music downloads, and - most unthinkable of all - a new tax on Knicks tickets.

"If anybody's contemplating leaving the state of New York," one Republican lawmaker groused, "this should push them over the top."


The lesson for Washington is this: The current economic climate is so dismal that what liberal theorists considered a modest tax increase on millionaires sent even limousine-liberal New Yorkers into a tizzy. From Manhattan's co-op canyons and the ritzy oceanfront palaces of the Hamptons came cries of bloody murder. And since they're the folks who host and attend political fundraisers, it quickly became more politically acceptable to raise taxes on Joe Sixpack's cigarettes and his kids' iPod downloads than on the earnings of hedge-fund managers.

The liberals' entire class-warfare edifice, it seems, rests on extremely thin ice. It's New York, New York, for heaven's sake. If you can't tax the filthy rich there, can you tax them anywhere?

Obama's tax-the-rich agenda is on even thinner ice. Unlike the lawmakers in Albany, he believes families with incomes as low as $250,000 (approximately four million households nationwide) qualify as "rich." Yet the overwhelming majority of these "rich" reside in states and congressional districts represented by his fellow Democrats. Obama may well discover that slapping new taxes on these 4 million households will give an unwanted political headache to those same liberal lawmakers whose votes will be required for its passage.

If the New York experience is any guide, Americans may already have reached the limits of politically acceptable taxation. Even before the financial meltdown, the national tax burden stood at about 19 percent of GDP, higher than the post-World War II norm and awfully close to the 20 percent level that has marked previous taxpayer revolts.

Lawmakers in Washington have displayed zero inclination to actually cut spending. And now we see that the politically acceptable default is to raise taxes on ordinary Americans.

Clearly, the incoming administration and its allies on Capitol Hill aim to spend literally trillions - trillions - of our tax dollars in the coming months without enacting any of the offsets that were promised so earnestly by their leadership.

Get ready, Middle America, for the largest, across-the-board tax increase in our history.

Mike Franc is Vice President for Government Relations at The Heritage Foundation.

About the Author

Michael Franc Distinguished Fellow
Government Studies

Related Issues: Taxes

First Appeared on National Review Online