The voters of Washington State crushed an attempt to levy new income taxes on the rich. The viewers of 60 Minutes, however, were just told that such taxes are a great idea. Who is right? Robert Murphy explains the economic rationale behind the voters’ choice. FULL ARTICLE by Robert P. Murphy
Source link: http://archive.mises.org/14495/soak-the-rich-taxes-fail/
Soak-the-Rich Taxes: Fail!
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The millionaire’s tax in Maryland was a failure, after it was implemented, tax returns for millionaires dropped by 1/3, and the $106 million revenue increase predicted turned into a $100 million loss. Only some of this was due to the recession.
Soak the Rich has also failed in practice. The Maryland millionaire tax hike resulted in lower tax reciepts from millionaires than before.
It doesn’t matter how many times it has failed before, governments are still going to keep trying and failing. Remember Charlie Brown trying to kick the football?
The definition of insanity – doing the same thing over and over again and expecting different results.
Hivemind.
Common sense tells that grossly unequal income state tax rates will cause net emigration of rich people to a low tax state so the experience of Maryland is immaterial to the discussion.
The purpose of a graduated income tax is redistribution of assets, not balancing the budget. How come Libertarians can see that without some redistribution process from generation to generation 99% of the assets and the economic power (is there any other kind of power?) will end up in the control of 1% of the people? We are almost to that point in the US. How can it be otherwise?
Is it because when people get rich they tend so spend the money on things and it gets… redistributed?
Your thoughts haven’t changed much in 5 years, eh, yet you are attracted to this site. Could it be you’re not really sure about what you believe in, but you’re not quite convinced of the alternative?
Not true – wealth concentration comes from excessive regulation, not the free market. A truly free market allows failure, but also vast economic success. The fear of falling keeps people cautious, while the possibilities bring out innovation and hard work.
I don’t immediately see why that should be the case or why “asset redistribution” should be an effective remedy against this.
At the present time, the major cancers seem to be politically well-connected companies that hoover up tax dollars and lobby for more or that have special sweet deals enabling them to ignore negative externalities [property rights these ain't at the present state of the discussion] or that shield them from competition.
Wrong.
And yet again.
My, how it becomes tiresome.
The purpose of the graduated income tax is to connive slave-mentality worker bees like you into thinking that the bureacratic monsters in DC are actually your pals. And they’ll just give you free little crumbs and pat you on the head sweetly, as long as you continue to guarantee their — not your, not my, their — steak and lobster dinners in Georgetown.
Further, not that it even would occur to you, how is it that the your imagined model of 1% owning 99% is impending, since taxes on the rich (and hell, everybody else) have increased per capita, consistently over the past century?
Common sense, my ass.
I can only hope poster King George is onto something with you.
I’m living the volatility that progressive tax rates produce.
My small business revenue is down 75% since 2008. I’ve laid off 40% of my employees. I’ve cut my own salary by 70%. My taxes payments this year are less than 10% of what they were in 2008. I was never taking home a million dollars a year – far from it. Most of the profits went right back into the business – but only after the federal, state, and local governments took a huge bite. I wrote tax payment checks large enough to buy a house!
Now nothing is being re-invested into the business, and next to nothing is going to the government. And I’m left wondering if it is worth the risk and effort on my part to try and increase my business revenues. All I get for it is more robbery and the knowledge that I provide financial support to a criminal enterprise writ large.
While there are a few “rich” in our country who were handed their wealth through no effort of theit own, on the whole, the wealthy have been rewarded for hard work, engenuity and the ability to put off gratification until tomorrow. In essence they have earned their wealth. I can only imagine that it takes some brains to become wealthy on the sweat of your own labor and therefore can conclude that those same brains can be used to find ways around paying these high taxes.
The Argument to raise taxes on the wealthy is foolish. raising taxes on individuals is a bad idea regardless of income level.
“The only true solution to the federal and state fiscal crises is to cut government spending.”
…and the only way to cut spending is to cut the size and scope of government. That, however, is easy: all the permissions (mandates, in fact) are clearly listed in the Constitution.
If politicians were forced to actually obey the law, they would be forced to say “no” to most spending proposals. (They certainly won’t do it voluntarily, because they think we live under mob rule — “democracy,” the tyrants and parasites call it.)
The problem is the Supreme Court judges. They’ll back anything their masters tell them to.
The obvious solution is to create a ‘Tax the Movers’ Fed tax.
If a person or business re-locates to a lower tax state, they must prepare returns for both states, pay the new state its tax, and remit the difference to the Fed for redistribution to the injured states. (after its 35% commission, of course).
Simpler would be a Jesus tax where you always pay taxes to the State you were born in.
I can’t begin to enumerate the special interest groups that would love either of these proposals.
Only individuals might feel oppressed. Do they still count?
I watched the sixty minutes piece and didn’t find it to be biased. Instead, they told the story and offered opinion on both sides of the argument. The only bias was that the opponents to the measure did not offer very compelling arguments.
One can certainly argue against the merits of a progressive tax and it is a discussion that is worth having. But I can’t buy into the “immoral” argument. In fact, I’d have to take the opposite position and insist that a flat tax is immoral given that the burden and impact of the tax on those making less is greater.
I think it is best not to rationalize a position with claims of “morality”. It taints the discussion and seriously undermines the credibility of those making the case.
Any tax is immoral. Flat, “fair”, progressive or regressive — it’s all still robbery.
I like the play on words.
Progressive tax sounds like something that is progressive. That is way better than saying that some citizens are required to pay a progressively higher percentage of their earnings in tax.
The first is far easier to rationalize against all men are equal before the law.
Flat tax sounds like I make 100k and pay 50k in tax and my neighbor makes 20k and pays 50k in tax.
Flat tax does sound far worse than a flat percentage tax for everyone.
What we have here is two totally different frameworks for our respective belief systems. In mine, morals, ethics, and economics are so inter-related that any discussion that attempts to exclude one of them, becomes fruitless to me.
Another way to look at it: progress is a neutral word that indicates a state of change between a beginning point and an end point. It is not positive or negative, good or bad. It merely takes on the characteristics of what the state of change is moving toward. In other words, progress toward building a healthy, stable business is good and progress toward the edge of the cliff in your car is bad. On neutral grounds, we are all progressing at a uniform rate toward our inevitable deaths.
As noted, progressive taxation only indicates the state of change between a tax rate of 0% and a tax rate of 100%. When certain criteria are met, the rate progresses closely to full confiscation (or in the case of Sweden a few short years back, active fining for making too much by setting the rate over 100%). As each new set of criteria are met, the progress marches ever onward toward total confiscation. Whether this is a good or bad thing depends entirely on the opinion of the individual. Some may still think it’s a good thing despite the fact that revenues decline with each progressive step toward the total confiscation end of the equation as it is viewed as fair (such as billwald above). Some find it bad on practical levels as it’s proven to generate lower revenues. Others find it bad for ideological reasons as it is viewed as theft or burdening one individual with a disproportionate cost compared to the actual use of government services (the wealthier one becomes, the fewer services are used).
Of course, this points out that being a Progressive is meaningless drivel as you can’t hold yourself to the lofty ideal held by a process of change between two states.
“Progress” as a standalone word or “Progressive” are words with positive connotations and seen as such by the majority.
: Progressive/Regressive
@Steve,
Help me with the math. If I’m a taxpayer under a “flat tax” and I make $10k per year and the tax rate is 17%. My tax would be $1,700 dollars. Now another taxpayer makes $200,000 per year and his/her tax will be $34,000 year.
Now why would the tax have a greater impact on the lower earner? If the lower earner is not responsible and has 6 kids than that person has created a large problem for himself. When a person is starting out their earnings are lower and the persons appetite for material goods and services should also be lower. That is just common sense. As their earnings rise throughout their life than they adjust accordingly. The key to remember is that we don’t have a static economy. The rich today could be the poor tomorrow and the poor today could be the rich tomorrow.
The burden and impact is felt by all. You just seem to think that the rich don’t need the money as much as a person making less. Now why would a person making less want people making more pay more? After all they are trying to attain the status of being rich. I think it is “immoral” to hold down these people trying to get ahead and soon as they start making more money than they are taxed more. The whole income tax institution is “immoral.” It is the life blood of the enlarged government. Cut off the money and watch the government shrink. Because you have some guilt ridden conception of poor people and how we are supposed to distribute wealth it is destroying these people. How many people even pay income taxes? How many live off the dole of the government? (taxpayers) What if the “goose that lays the golden egg” decides to go on strike? Hey I could write a book called “Atlas Shrugged.”
You misunderstood the article. The argument of morality that was put forth was that taxes themselves are immoral, for anyone. Theft is theft, whether you are rich or poor.
So Steve, the best thing you can come up with as an argument is the line that Robert said he wasn’t going to go into… You made no effort whatsoever to deal with Robert’s argument that progressive taxes cause declining revenues in down years.
You “insist that a flat tax is immoral given that the burden and impact of the tax on those making less is greater.”
Looks to me like you are trying to rationalize a position with claims of morality.
Stahl is just an older and worse-looking version of Katie “I love the Left-Wing Establishment” Couric! And neither women have a clue as to how all of this economic stuff works.
In practice, here is what happens.
1) They assume the tax hike will result in increased revenue.
2) They spend the increased revenue.
3) The tax increases contract the economy and not only do they not get the extra revenue projected, but they actually get less.
4) The contraction in the economy causes unemployment to rise. They then have to pay out more in unemployment benefits – these expenses were not originally included in the budget.
The net result – an even higher deficit.
What is worse, it encourages new businesses to look elsewhere, or existing marginal businesses to look to relocate to another state or move offshore.
And next time in this class: Why you cannot “filibuster an economy”!
Meanwhile, in Massachusetts…
While you are right in a pure environment we have a situation where many, in fact I would guess most, high earners outside of entertainment and sports are earning because of government rent.
I include lawyers, corporate executives who are benefitted by the legal environment that enables them to appoint compliant boards, “small businessmen” selling to the government. If we eliminated rent seeking…..and eliminated corporations which have been granted rights by government, investment bankers investing with fed protection and purchased inside knowledge of Washington to predict what is happening, I could see some rationale here. As long as the high earners……and some of the sports starts earnings are enabled by the rent seeking networks or stadium authorities……are earning it on their own and not thanks to a gift from the government your argument might make sense. For now we need to curb rent seeking and high tax rates on high earners are a good way to do it.
How about eliminating “rent seeking” by eliminating rent?
Stnsda back from the keyboard in amazement! Thanks!
Keep these soak the rich taxes in CA coming, more people and businesses moving to the Great State of Texas, its good for me!!!
Ignoring all of the moral and practical issues of taxation, there is a more sobering reality that seems to go unaddressed and that is Hausers law.
http://www.hoover.org/publications/hoover-digest/article/5728
Reading Hauser’s law, it appears that the government can never collect on average more then 19.5% of GDP in taxes. This is total taxes, from all sources. This would indicate that for the government to maintain a budget of $3.7trillion it would need a GDP of about $19T. If you take 2009 GDP of 14.2T, that would mean the biggest budget the economy can support is $2.7T. Even this number is too high, when you consider that GDP includes government spending.
The way I see it, there is no amount of taxes that government can raise, that will fill this gap we have created. Even worse, it appears we are nearing the end of the road for being able to ignore this issue through intellectual deception and accounting trickery. I think the general public is awaking to this reality, but I seriously doubt all but a small percentage really understand the severity. We have put ourselves in a box.
This is an excellent article because it goes beyond the “economic schools” and political posturing to get at the heart of the issue. Progressive state taxes do not work because of business cycles and freedom of movement. They work at a federal level because although business cycles are still prevalent, one is not very free to renounce citizenship (the IRS gets to watch and tax you for the next 10 years, I believe).
In my limited experience, only the Austrian School could have come to this correct conclusion because they tend to look at how people really react to such policies rather than how they are supposed to act according to econometric models.
As mentioned in the article, many Austrian School enthusiasts view all taxation as theft and it is fine to mention that as an aside. But, the Austrian discipline really speaks to the mainstream when you move past the polemics and demonstrate how a policy like progressive state taxes is doomed to failure in achieving its primary goal. Every state considering a “millionaire’s tax” should be forced to rebut the arguments contained in this article before wasting voter’s time and money with a referendum.
Home run! Great slugging with that anewsr!
No sense taxing the rich, it is much easier to tax the poor. They won’t have any money left over to defend themselves.
Considering the poorest 50% pay for less than 3% of the total in personal income taxes and the richest 5% pay over half of all personal income taxes, I’d say you are wrong.
As a Washingtonian, I was happy to see that most initiatives to raise taxes in Washington were shot down. It’s just too bad that we weren’t able to get rid of the state monopoly on liquor sales this time around. But there is something charmingly Soviet about these state run enterprises. Not coincidentally, prices are high, selection isn’t that great and service is poor.
While that is an accurate categorisation of current practice, it is not true in general. Rather, whenever and wherever governments have engaged directly in productive behaviour (which they sometimes have), it was a wasteful use of resources compared with leaving it to a free economy (as in the USSR) or it was done at some people’s expense even though it actually was an efficient use of resources (as in the Dutch East Indies under the Culture System, where many of the natives were exploited even though some gained as middlemen). Things did get created, it just wasn’t worth it in some sense.
Bob,
Very good article. It’s great to have proper explanations for proper economics. You need a larger audience.
The simple truth is this: If Washington state enacts a “rich tax,” those who are targeted have the resources to pack up and leave. Much like my current plan to depart the People’s Republic of California as soon as I can.
Keep up the good work.
Excellent article Robert….Thank you!!
Excellent article Robert….Thank you!
Sounds like you may have read “Economics In One Lesson” by Henry Hazllitt.
Now to end the current & corrupt 67,000 page Tax Code, I would like to bring your attention
to the “Fair Tax” concept. I look forward to reading an article from you on the “Fair Tax”.
Thanks again for this article.
In 1980, I had had enough of the American tax system. Legalized plunder is the mainstay in regulatory democracies; let’s just say anywhere that political systems reign, corrupt to the core and use “law” to sanction individuals through theft. I left the system—that of tax thugs, voting wheedlers, gimme-gimmes and trough-suckers that believe in taking government pelf via the badge and gun for redistribution. This was followed by renouncing citizenship since the American government has its “tax worldwide” applied to wealth in its various forms. Three-flag. That was the single best thing I’ve ever done in life! The government-controlled schooling, its propaganda—tribal and religious inculcation were finally overruled by this individual. I’ve never looked back! I found freedom in an unfree world, as the late Harry Browne would’ve quipped!
If on an economic and finance basis (Holding Period Return, ^1/n), you look at the growth over your lifetime when removing the hands of an insidious plundering system from your pocket (Use a good business calculator, to express the exact measure of savings over time), you then must make a decision: do I stay in the state of subjection, a fettered tax slave, under the master’s lash and yoke? Or do I leave and seek a jurisdiction that keeps its hands out of my wallet without my permission? I said goodbye! Again, to become a true, real sovereign individual requires chutzpah! The Establishment and its elite despise such unfettered individuals although it’s never publicly admitted.
The collective will use “force,” as necessary to make sure you comply with its authority. Think not? Think again! Most individuals within the collective remain there from cradle to grave within the New Age of Denial. As H.L. Mencken noted, “Liberty is not a thing for the masses of men. It is the exclusive possession of a small and disreputable minority, like knowledge, courage and honor. It takes a special sort of man to understand and enjoy liberty—and he is usually an outlaw in democratic societies.” ~ Baltimore Evening Sun, Feb. 12, 1923
C’est la guerre,
Capt. A.
Principaute de Monaco
UTC +1:00 CET
The collective will use “force,” as necessary to make sure you comply with its authority. Think not? Think again! Most individuals within the collective remain there from cradle to grave within the New Age of Denial. Capt. A.
Oh listen to your self. Do you think socialism sprang up from nowhere? It is a reaction to the fascism starting with robber chiefs, moving on to “royalty” and the government enforced usury and counterfeiting class.
Hint to fascists: Stop stealing from the “masses” via government privilege and the “masses” will have no need to steal it back via government.
Soak-the-Rich Taxes: Fail!
Maybe, but not because the rich necessarily deserve to keep their money.
Consider fractional reserve lending. Does it not cheat savers of honest interest rates for the benefit of banks and borrowers? And who are the so-called “credit worthy”? Are they not those who already have money, the rich?
So, in the case of the rich who have built their wealth via loans from the government enforced counterfeiting cartel, they have stolen it.
Should not that theft be recovered and given back to the victims? Or should the victims pay the same tax rates as the villains?
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