Editorials

The capitalistic system has made America the most prosperous country in the world, but some liberal politicians continue to think “spread the wealth” approaches of other nations somehow are better despite dismal economic results.

In the United States, liberals are becoming more emboldened, as reflected by new ways being conceived to “soak the rich,” observed J.D. Foster, a Heritage Foundation fiscal policy expert.

Cited as an example is New York City Council Speaker Christine Quinn, who is testing the waters for an income tax surcharge for those making more than $1 million a year.

Her voice on the topic is not a solo performance, but seems to be more like joining a growing chorus. Sen. Barack Obama, the presumptive Democratic nominee, has taken a lead by suggesting raising workers’ top combined federal tax rate from 36.2 to 54.8 percent for starters. Rep. Charlie Rangel, chairman of the powerful House Ways and Means Committee, has proposed legislation raising the top rate to 45.4 percent.

The House of Representatives recently included a 0.5 percent millionaires’ surcharge to fund expended veterans benefits.

New York has a lot of big earners, but most of them pay a lot of taxes already. There is a 35 percent top federal tax rate, plus a 1.2 percent Medicare payroll tax for starters. New York State adds almost 7 percent and New York City another 4 percent for close to half of what those people make already.

Yet Quinn, at Crain’s New Business forum last week. suggested a millionaire’s surtax for 2010, Foster said. But she tried to ease any concerns for those in somewhat lower brackets, saying: “I don’t think a proposal of taxing people who make $200,000; $350,000 … makes sense for next year.” No promises, apparently, for the future beyond that.

Pretty soon, Foster noted, taxpayers at lower levels, “too could be (taxed like) a millionaire.”

Justification given for raising taxes is a gloomy economic forecast for 2010 that means the budget will need more revenues.

As always has been the case, Quinn will be unpleasantly surprised when her plan fails to make up for the budget shortfall, Foster said. Higher tax rates discourage workers from putting in the extra time and effort that generates additional income.

This especially applies for millionaires who have the greatest flexibility of all to work less and play more golf, shift income to tax-exempt benefits, delay when they receive income through devices such as stock options and move to cities and states with fewer punitive taxes.

Fifteen years ago investment economist Kurt Hauser found that no matter how much marginal tax rates are increased, tax revenue as a percentage of Gross Domestic Product never increases, Foster pointed out. Researcher David Ranson recently updated those numbers and found nothing has changed. Even as top tax rates have dropped from 90 percent to less than 40 percent in the United States, the revenue percentage remains around 19.5 percent of GDP. When the rich are charged more, they just make less.

Higher tax rates discourage economic activity broadly, meaning fewer jobs, lower wages and fewer opportunities for non-millionaires.

Gov. Jennifer Granholm of Michigan might be a good person for Quinn to talk with before carrying out her plan. When Michigan faced a large revenue shortfall last year, Granholm pushed through big tax rate increases. Unemployment remained high and tax receipts dropped by 4 percent. Homeowners and businesses fled for states with lower taxes.

Big auto in Detroit once was considered infallible. New York should realize big finance also can fail in that city if initiatives such as the $1 million surcharge pass.

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