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A Further Perspective
I See England, I See France
Where in the world have tax increases made things better?
The left and much of the center are launching a scorched-earth assault against the right’s position on taxes.
Republicans are being told they must hike taxes on top earners if they’re serious about paying down the debt. Grover Norquist is being portrayed as a mad sorcerer, staggering around and misfiring spells in fits of pique while his entranced minions slowly come to. Here in Washington, meaningless buzzwords are fluttering through the air like dead autumn leaves. “Serious.” “Hostage takers.” “Reality-based community.” “Balanced approach.”
The last of those terms might be the most amusing. President Obama’s initial fiscal cliff plan was repeatedly lauded as a “balanced approach.” On one hand, Democrats got tax hikes on the top earners. And on the other hand, Democrats got $200 billion in stimulus. Even-steven, you see.
But let’s examine the plan’s main provision and President Obama’s loudest podium-thumper: the tax hikes on top earners. If passed, rates for the top two tax brackets would increase from 33% and 35% to 36 and 39.6% respectively, tax rates on capital gains would go up from 15% to 23.8%, and the top rate on dividends would skyrocket from 15% to 43.4%. The president’s accountants claim this would raise $1.6 trillion over the next decade without slowing down the economy.
If that were true, it would be worth consideration. Conservatives like low taxes, but the overriding concern right now must be paying down the debt. $160 billion per year might be a drop in the bucket, but enough drops fill up.
The problem is it’s not true. Raising taxes only makes things worse. The vintage conservative nostrums about higher taxes reducing revenue and enervating economies still hold.
Look at Great Britain where former Prime Minister Gordon Brown pushed through a tax hike shortly before voters booted him in 2010. Wealthy earners saw their rate increase from 40% to 50%. The top rate for capital gains also shot up 10%.
The results have been catastrophic for Britain’s economy. In 2010, there were more than 16,000 people in Britain declaring income of 1 million pounds or more. With Brown’s new taxes, that number dropped to just 6,000 as the wealthy either left Britain or trimmed their income to avoid taxation. Earlier this year, under Conservative Prime Minister David Cameron, the government announced it would drop that rate from 50% to 45%. Since then, the number of residents declaring 1 million pound incomes is up to 10,000.
Higher tax rates lead to fewer millionaires; lower tax rates lead to more millionaires. It’s as clear an illustration as you’ll ever see. And far from increasing revenue, Brown’s tax burden actually cost the treasury 7 billion pounds. Britain’s economy has stalled since Conservatives took power, leading various Krugmanians to reflexively scream “AUSTERITY!” every time they hear an English accent. Britain’s recession is complicated but one of its real causes is surely “TAXES!”
Across the channel in France, Socialist President François Hollande is trying to mend his country’s crumbling finances with a host of new taxes. The most lacerating one is a 75% income tax rate on millionaires. Also included are new taxes on capital gains, a hike in inheritance charges, and an exit tax for those selling their companies.
The question now isn’t whether wealthy French will leave, but how many. The New York Times quoted one tax specialist saying the exodus wouldn’t be limited just to millionaires, but also to up-and-coming entrepreneurs with six-figure incomes. Fleeing businessman Jean-Emile Rosenblum summed it up as only the French can: “France is no longer a sexy place to be.… With all the costs, the taxes, and the social pressure, France looks more like an old maid to me.”
We can add French voluptuousness to the list of things progressive economists have ruined. Expect the usual consequences: fewer millionaires, less investment, less revenue, and slower growth.
Then there’s that other exotic republic being run into the ground by socialist technocrats: Connecticut. The Nutmeg State crushed its residents with a landslide of tax increases in 2011. There were hikes on most incomes, sales tax increases, reduced exemptions, and new fees on just about everything, amounting to $2.6 billion over two years.
Among the wreckage in Connecticut, according to Jillian Kay Melchior, is a $365 million budget deficit, more than six times what Governor Dannel Malloy initially estimated. Meanwhile, revenue raised from high earners was lower than expected. As Melchior notes, Connecticut’s “remaining residents must know that another state is never more than 50 miles away.”
Starting in 2007, Maryland, under the leadership of progressive rising star Martin O’Malley, raised taxes 24 times to the tune of some $2.4 billion. Maryland’s wealthy promptly fled across the border to business-friendly Virginia. A study by the conservative group Change Maryland found that the Old Line State had lost over 31,000 residents since 2007, the most of any mid-Atlantic state. A $1 billion deficit is projected for 2013.
None of these examples is perfectly analogous with the United States as a whole. But they do suggest an underlying principle: well-intentioned tax hikes lead to fewer high-income earners, less revenue, and unexpectedly ballooning budget gaps. It would be nice if we could raise taxes exclusively on the super-rich while not slowing the economy; everyone should sacrifice to pay down the debt, after all. But the comparative evidence suggests that doesn’t happen.
Serious People in Washington can haul out their projections. They can reassure themselves of their gargantuan intelligence and somberly denounce Republican extremists. But if they want to increase taxes, they also have to explain why their policies don’t seem to be working anywhere.
About the Author
Matt Purple is The American Spectator’s assistant managing editor.
Letter to the Editor View all comments (29) | Leave a comment
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LONE STAR| 12.6.12 @ 7:22AM
All of the Bush tax cuts will expire at the end of the year.
If the Senate Democrats pass a bill extending the tax cuts for everyone earning less than $250,000.00, or whatever figure they choose, the House Republicans will need to vote for that.....The way things are set up, they will have no choice....They will not be voting to raise taxes on the top 2%, that is going to happen no matter what. They can't refuse to vote for extending the tax cuts for the other 98%.
On the other hand, House Republicans do not have to vote for any spending they don't like...They have the power of the purse, if they have the courage to use it, and hold firm in the face of enormous media pressure.
It's two years til the next election...all of this will beforgotten by then...
Frank Drackman| 12.6.12 @ 8:34AM
No Choice???
Thats what America's about CHOICE, if a chick wants to terminate her pregnancy before the baby, I mean Fetus has crossed the goal line, thats her CHOICE buddy, and don't you forget it.
The Repubiclans have a choice, they don't HAVE to Vote(Is this Russia? This isn't Russia) or they could vote "Present"(I always used to say "President"! in school, still cracks me up) and anyways, its about time you Schlubs who can't make over a piddly $250K( not very much really, ) paid YOUR fair share...
Frank "Scrooge" Drackman
Appleby| 12.6.12 @ 7:33AM
There is a good reason that the Island of Jersey, off the coast of Formerly Great Britain, has the highest number per capita of Mensa members in the world. Those of us who follow Formula One can also tell you there's a good reason why successful British drivers relocate to Monaco and Switzerland. As I keep reminding my socialist sister, Rich Folks Have Options. And one of those Options is to take good care of their money. That's how they got rich in the first place. It's not rocket science. P.S. to Democrats: what's the definition of insanity again?
PolishKnight| 12.6.12 @ 9:40AM
Before you call the Democrats crazy (and in many ways, they are), keep in mind they won 2 presidential elections, control nearly all aspects of government and bureaucracy including teachers and police unions and have overwhelming support in the media.
"Crazy" is a matter of societal standards. It was "crazy" to not believe witches flew on brooms 300 years ago.
The ONLY thing the Republican elite has cared about has been top rate taxes on the rich and their campaigners have cared mostly about how much abortion should be outlawed. That's crazy and now they're reaping the rewards of being locked up in a rubber room and told by Obama and his minions what their schedule is going to be like and different pills they have to eat. Get used to it. The white males can't get them out. We've been told they called for the Hispanic vote to come testify about their sanity. Good luck with that! Haha!
TLP| 12.6.12 @ 2:30PM
The Canadian broad is absolutely right.
With Wealth, comes Mobility. Just ask The Google Guy who left for Singapore, rather than give what he EARNED to the guy in The White House, who never had a Job in his life.
Rich people got Rich, because they're Smart, and they're Driven to Succeed.
Carnegie started as a Ticket Puncher, for a Railroad Company. Bill Gates and Steve Jobs started their Companies in a GARAGE. Sam Walton began with a Five and Dime Store. Levi Strauss came to this Country with $17 in his pockets. Kellogg, Hershey, Jim Beam, the guy at Sam Adams. COSTCOS CEO worked his way up through the ranks.
All of them gave it their all. Nobody gave them anything.
That's the American Dream, and over the years, they have Employed MILLIONS.
For this Street Hustling Bag Man for the Daley Family to now PUNISH these people's Life's Work, is Despicable, at best.
And Criminal, on its face.
These Rich People will do the Obvious. They will leave for Greener Pastures.
And, who could blame them?
Not me.
PolishKnight| 12.6.12 @ 4:32PM
When I was a child, I became enamored of the story in Thomas Edison's biography. Later on, I read accounts that most of his stories were tall tales including "inventing" the light bulb (he copied it from a British inventor. He got the patent rights in the USA. Not the same thing!)
Bill Gates had a mother who worked for IBM who got him the contacts for a meeting to sell them an operating system and then he used Daddy's money, that he got by making tax shelters for the wealthy via laws he lobbied for to "tax the rich" to make them need his shelters, to then by the OS from another company. In other words, Bill Gates had a silver spoon in his mouth and levered it to build a monopoly to sell 2nd rate operating systems to the world today.
Steve Jobs is well known as a psycho. He blew his chance to get his operating system as a monopoly because he was so easily manipulated by Bill Gates. He treated many of his employees like dirt and offshored to Foxconn which treats employees worse than V-2 rocket builders during WWII.
Folks, the ultra rich are not our benevolent masters. They certainly didn't care enough about us to get sufficient numbers of us to win this election!!! Did they?
chuck| 12.6.12 @ 7:43AM
Can someone explain this to John Boner? And the rest of the GOP House "leadership"?
Russel| 12.6.12 @ 9:14AM
They've been trying , Chuck . Rush has been at this all week and Hannity said yest. Bonehead won't even return his call , much less go on the air . Cantor seems dazed and confused , perhaps not yet willing to throw in the towel like the crybaby , and mcConell is off on planet Zetar again . But the most disturbing part is that any Tea Partiers have been removed from the commitee's and told to just leave negotiations . As one here adroitly put it , the " steaming pile in Wash. " ......
Alex Feltham | 12.6.12 @ 8:15AM
But how is it that liberals who dominate the intellectual elite are so wrong about this and many other questions?
Read "The Fatal Flaw" at:
http://john-moloney.blogspot.com/
jaytrain| 12.6.12 @ 8:20AM
You are all missing the point . This is not about taxes or fiscal cliffs . It is all about retaking the House and completing the rest of the far Left agenda . All of the steps of the Alinsky strategy are in place : The enemy has been fixed and frozen with Boehner & Co doing there very best to fall into the trap . Next , or already in place , the personalization , the ' millionaires and billionaires ' . And the resulting economic fall out will be heaped on the R. 's . Buddabing , Pelosi & Co back running the House . And not to mention , Reid having gone nuclear in the Senate and another Wise Latina on the Court and it's lights out for the Republic .
Nancy in NC| 12.6.12 @ 8:35AM
The GOP has its progressives as well. The sooner they rid themselves of John McCain, Orrin Hatch and Lindsay Graham (and others) the better.
Ralph Novy| 12.6.12 @ 3:49PM
Name one single "progressive" in the GOP, Nancy.
And, of course, give me your definition of "progressive" in the process.
Ralph Novy| 12.6.12 @ 3:53PM
I'm sensitive to the point because some goomer on this site, the other day, used the expression "progressive dictatorship."
How oxymoronic, eh?
Frank Drackman| 12.6.12 @ 8:29AM
I thought it was just "Arithmetic", like how you can't divide by Zero(How come?, you can add Zero, Subtract Zero, Multiply by Zero, take a Square, Cube, Quadruple root of Zero)
Go back to the Clinton Error Rates, put that 10% Bracket back where it should be, and hey, that 1994 Defense Budget worked out just fine, X-Squeeze me, but did anybody invade the US in 1990? 1991? 1992?.......2000?, OK, forget 2001, there's always one ugly girl in the bar....
TAX EM TO THE STONED AGE I SAY!!!!!!!!!!
Ofcourse most Repubiclans have the spine of Don Knotts in "The Incredible Mr. Limpett"(which I actually saw on the big screen, yeah, I'm old)
Frank
JP| 12.6.12 @ 8:54AM
Sure, and we can return to the Clinton Era spending as well - $1.8 trillion. Today, we are at $3.8 trillion.
Anyone with eyes can see we have a spending problem and not a tax problem.
Pecos Pete| 12.6.12 @ 8:30AM
"Britain is closing the corporate tax gap with rivals such as Ireland and Luxembourg by slashing a further 1% off corporation tax." Down to 21%.
The United States has the highest corporate tax rate in the world at 39.2 percent.
Can anyone (King O, Congress, the MSM) say: Outsourcing by US companies is driven by high tax rates.
Russel| 12.6.12 @ 9:28AM
Yes , but don't forget the rules and regulations that King Zero is piling on them at a rate of six a day . With the EPA doing his bidding as well , we read that electricity rates most probably will go through the roof . When you can't use oil and electricity , it's time to move or die .
Pecos Pete| 12.6.12 @ 9:37AM
By the way, the link below has an interesting 2013 income tax calculator.
http://interactive.taxfoundation.org/taxcalc/
Howard| 12.6.12 @ 8:38AM
The example of Connecticut is interesting. Until Lowell Weiker instituted an income tax in the early 1990's, that state was growing. And while much of the growth was in Fairfield County, it was still growing statewide. The income tax originally about 4.5% is now much higher. While the Greenwich Hedge Fund folks are doing fine, the state as a whole is suffering. Fewer start-ups, much higher costs to live and do business in. The result is a growth in government and a stagnant economy. The Democrats answer? More taxes!!
c. j. acworth| 12.6.12 @ 9:00AM
I fled from CT just ahead of Weiker's income tax. He ran on a platform of no income tax, against a Dem. who wanted one. The people voted for no income tax and so Weiker, in true RINO form gave them one. By then I had escaped to New Hampshire. No income or sales tax.
JP| 12.6.12 @ 9:18AM
The last budget before the Bush Recession hit had a $200 billion deficit and federal spending was $2.6 trillion. That was in 2007.
Today, our budget sits at $3.8 trillion and our deficit is $1.2 trillion. Obama took all of Bush's one time emergency spending, added $400 billion and called it the new "norm".
Obviously, we have a spending problem
Albertus Magnus| 12.6.12 @ 11:31AM
"The problem is it's not true. Raising taxes only makes things worse."
This of course depends on whose "things" one is talking about. For the middle class, this is true. But for politicians and bureaucrats, things always get better with higher taxes. More of other people's money to play with, or so they think. High taxes really expand the POWERS of government busy-bodies (e.g. "liberals") who are psycho-pathelogically compelled to meddle in other people's business. For such as these, high taxes means more power and more things to do, boosting their fragile egos and giving their otherwise empty lives "meaningful" work to do. There is only one core motivation that drives Obama and the Democrats: their own insatiable egos. Since they are incapable by education, training, or temperament, to actually accomplish anything of substance, they turn to politics to claim credit for things they cannot do. And, like "Baghdad Bob" claiming there are no American forces in Baghdad while the tanks can be seen in the background, Democrats protest a recovering economy and claim the "stimulus worked" even while the economy collapses before our very eyes from massive debt, devaluing currency, and lost jobs. But for them, life is peachy. They live on OTHER people's money, not their own. They are taken care of by the corruption of their own actions, and the American Middle Class is left to foot the bill.
Ronsch| 12.6.12 @ 1:19PM
Even better...there are a couple of news articles out that NerObama wants to have the power bestowed upon himself to allow for at will hikes in the debt ceiling...Dingy Harry Reid has been quoted as saying not allowing for that is simple GOPpolitical tactics...
djn1313| 12.6.12 @ 1:28PM
Raising taxes just gives obama and the demoRATS more tax dollars to p_ss away. obama has no interest in reducing the debt or to cut wasteful spending. He is a stinking LIAR.
Ralph Novy| 12.6.12 @ 4:00PM
You write well, sir.
But your conclusions are clowded by by class bias, methinks.
No, don't penalize risk-takers. But DO penalize reckless, feckless risk-takers.
"A penny saved is a penny earned."
Yes.
But not by cyber-arbitrage!
That's not "earning."
Feel me?
Cheers.
cicero| 12.6.12 @ 4:58PM
We have a pretty good system if we allow it to work. Capitalism says that if you are succeessful, you win; and if you are not, you fail. It works unless the government gets involved and tries to HELP those who fail. Or those who are too big to fail. But then again, if government didn't see that as their calling, no one would need them at the cost of 25% of GDP. The country could probably get by with a 5% government.
That is the real problem with raising taxes. The more they tax, the more they find to do with the money. Before you know it, the country is tied up in a ball, and is rolling down hill. Oh yeah, that's where we are now.
Stan Redmond| 12.6.12 @ 5:16PM
Taxes are just another way to define leaglized slavery. I don't remember the exact date when you start working for yourself but if you're a $100k per year wage earner in a nice house your tax freedom day is mid July. You work 1/2 your life with no legal right to your own labor. It use to be called slavery now it's called "paying your fair share."
GobBluthe| 12.6.12 @ 5:39PM
I don't know why the GOP is going to the mat for the top 2%, the majority of whom voted Obama. 8/10 of the richest counties voted Obama. The GOP should also get rid the the federal deduction for state and local income taxes.
topcat52| 12.6.12 @ 9:14PM
Which is why it is best to allow the President to get what he wants. It will be shown to fail. It is the only way the majority of Americans who believe everything the liberal media tell them will learn, hopefully in time for the next election. Let the taxes increase for a short time - see the failure. They can always be reduced again.