I'm going to make a proposal that's going to rile a lot of people but if you bear with me I think you'll see the sense of it. I'm going to suggest that we accept President Obama's offer that we "raise taxes on millionaires and billionaires" as part of a deficit-reduction agreement.
Now here's my logic. First of all, we completely take his most powerful weapon out of his hand. The President has already decided he's going to run his entire re-election campaign around the theme of "making the rich pay their fair share" while Republicans will be cast as "protecting the rich at the expense of the poor and the middle class." Take this issue out of his hands and he'll have to run on his own record, which will mean almost certain defeat.
Second, there's absolutely no chance his plan will do anything to improve the economy. Raising taxes on rich people will make a pathetically small contribution to balancing the budget and will hurt investment, which will ensure that things will be just as bad in November 2012 as they are now. There won't be any George Bush to blame this time. The electorate will can the President and Republicans can undo all the damage in a very short time.
But here's the most important thing. When Obama talks about the "millionaires and billionaires" and their $250,000 incomes, he's really talking about a class of highly professional people who are making a lot of money, not in the private sector but in high-level government jobs and non-profits. Nearly all of these people are concentrated on the East and West Coasts, particularly in New York, Washington and California. This is the core of Obama's support. He takes in more campaign contributions from one afternoon on Wall Street or in Silicon Valley than he could raise from a month doing bus tours in the middle of the country. Why are we protecting these people? Let them experience the consequences of their misapprehensions. Maybe they'll find their inner Republican and discover they're not such enthusiastic tax levelers after all.
New York in particular is filled with people making huge salaries in the educational establishment and non-profit sectors. More than 40 percent of school superintendents in New York State now make over $200,000 in salaries and benefits. The authority here is no less than Governor Andrew Cuomo, who is trying to cap them. One Long Island superintendent makes $346,000. The Governor himself only makes $179,000. The other day there was a story in the paper about some assistant to an assistant principal in New York City who was charged with beating his wife. The article mentioned his salary -- $140,000. Obviously his superiors make much more. As Fred Siegel pointed out in The Future Once Happened Here, when President Clinton raised taxes on "the rich" in 1992, "75 percent of the people who saw their taxes go up lived within sight of the Empire State Building."
The illusion Democrats are operating under is that the Tea Party somehow represents "the rich." On the contrary, the Tea Party is made up of middle class entrepreneurs and professionals from the middle part of the country. They are in rebellion against the elites of the East and West Coasts. The new issue of Spectator carries an article, "Andrew Jackson, the First Tea Party President." That is absolutely right. Andrew Jackson did not come to the White House in 1828 with the support of college students, union members, single women, African-Americans, gays, and Hispanics. Jackson's core constituency was freeholders and small business owners who were rebelling against the East Coast elites who were trying to turn American businesses into a "public-private partnership" on the model of European mercantilism. The major issue was incorporations. The East Coast elite wanted to limit incorporations to monopoly charters granted by the federal government on the model that persisted in England right through the 19th century. ("The King's ice cream maker" and so forth.) The National Bank was the perfect tool for synthesizing this crony capitalism. In opposing it, Jackson was arguing no differently than Ron Paul. Fortunately the frontier capitalists won their battle and America became a land of free enterprise.
The Tea Party is the contemporary version of this rebellion. Its strength come from Main Street -- real estate agents, shopkeepers, and small business owners who are repelled by the marriage of Washington and Wall Street they see taking shape. Obama's effort to characterize these people as "the rich" is only an attempt to divert attention from his own cozy relationship with corporate executives and Wall Street titans.
If Obama's effort to "raise taxes on the rich" ever takes shape, the first person to scream will be New York Senator Chuck Schumer, the Democratic majority leader, who realizes those $250,000 "millionaires and billionaires" are his constituents. Schumer has already complained that "$250,000 makes you really rich in Mississippi but it doesn't make you rich at all in New York. There ought to be some kind of scale based on the cost of living on how much you pay." That's a good start.
But here's the real reason for adopting Obama's plan. One of the most important "reforms" he's pushing is a limitation on itemized deductions for high-income taxpayers. This is where he rolls out the rhetoric about corporate jets. But besides mortgage deductions on homes, the most significant deduction people take -- in certain areas of the country, at least -- is state and local taxes.
Many high-tax East and West Coast states are living off these federal deductions. For decades, politicians have sold their constituents on extravagant spending-and-taxes on the grounds that "you can deduct all this from your federal income tax." New York has followed a deliberate policy of raising state and local expenditures in the confidence that these can all be foisted onto taxpayers elsewhere.
As Siegel chronicled in The Future Once Happened Here, New York developed a symbiotic relation with Washington in the 1930s when Mayor Fiorello LaGuardia was able to dump all New York City's extravagant social spending into former New York Governor Franklin Roosevelt's New Deal. The nation's first public housing project, on the Lower East Side, was started by the city but completed with federal dollars. Today New York has more public housing than the next ten cities put together -- all of it heavily subsidized by Washington.
When Medicaid was introduced in 1966, most states saw it as an added financial burden to be carefully circumscribed. California set up a state-run HMO on the model of Kaiser Permanente to keep expenses low. Arizona recently cut 250,000 people off its rolls. But New York officials decided to encourage Medicaid spending as a way of "leveraging" federal dollars.
According to the matching formula, the richest states, like New York, get a 50-50 match while the poorest, like Mississippi, get 75-25. In 49 other states, the non-federal portion comes entirely out of state treasuries. But New York has enlisted cities and counties to kick in half the state's costs on the principle that the more we spend, the more we collect from Washington. Politicians in Albany are forever proclaiming that expanding Medicaid is healthy because "every dollar we spend brings in three." As a result, New York's Medicaid expenses have ballooned to $16 billion a year, more than California and Texas put together, even though those two states both have larger populations. Cities and counties in New York are going bankrupt trying to pay the bill. A few years ago the City of Buffalo tried to disincorporate itself and join surrounding Erie County because it could no longer shoulder its Medicaid expenses.
All this spending has created a huge health/hospital industrial complex that dominates New York politics. The Greater New York Hospital Association regularly takes out full-page ads with Dennis Rivera's notorious Local 1199 of the Service Employees International Union, made up mostly of hospital workers, to encourage the state to spend more on Medicaid. Crain's New York Business recently ran the following report:
Just 10 doctors from Beth Israel Medical Center and St. Luke's-Roosevelt Hospital Center in Manhattan earned $30 million among them. . . [T]he highest-paid doc was the head of plastic surgery at Beth Israel, with $4.7 million in compensation in 2009.
The president of Hackensack University Medical Center… was at the top of the list with an astounding $7.3 million -- of which about $5 million came as a golden parachute after the medical center dismissed him.
All this is made possible by the constant stream of federal dollars flowing into New York -- plus the itemized deductions from federal income tax that softens the blow for high-income New Yorkers. But wouldn't high-income people in Florida and Texas take the same hit? No, because Texas and Florida have no state income taxes. They don't get the "benefits" from profligate state spending.
So here are your "millionaires and billionaires," Mr. President, sitting right in the middle of your prime fund-raising territory. Let's go get them!