rocket finance

Millionaires need not apply

A few weeks back I posited my belief that the United States should try to become a tax haven. Since then, I have read several stories that seem to add support to the idea that if government were to cultivate a climate that is supportive to business, then they do not have to worry about revenue and staying financially solvent.

Last week, I saw the following headline in the Denver Post: Truck company skirts Colorado fees via Wyoming. Colorado companies have been licensing their trucks in other states in order to avoid the high fees imposed upon them by the Colorado legislative branch. As a result, Colorado is experiencing a funding shortfall of millions of dollars. It doesn’t take a rocket scientist to figure out how to solve this problem, but of course our legislature is look for ways to make the Colorado business climate even more hostile to trucking businesses. Meanwhile Wyoming is collecting licensing fees . . .

If everyone goes to McDonald’s because of their dollar menu, would it be smart for Burger King to raise its prices or block customers from leaving the driveway? Sounds crazy, doesn’t it? But that is how the majority of your political leaders view your state.

An article from the Manhattan Institute, written in 2003 predicted the economic crash of the high tax states. E.J. McMahon wrote:

Recent history doesn’t bode well for states that raise taxes in a recession. California, Connecticut, Massachusetts, New Jersey and New York all enacted significant increases from 1990 through 1992. During that span, they collectively lost 1.2 million jobs. Their job growth lagged far behind the national rate until they began rolling back taxes in the decade’s latter half.

Ironically, we are talking about the same states being in dire financial straits today. California’s woes are well documented and Massachusetts raised taxes on the wealthiest .03% of its population last year. Governor O’Malley declared that these rich people were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.” A year later and a third of Massachusett’s millionaires have left the building causing a large budget shortfall – after a tax increase. You can read more in Millionaires Go Missing from the Wall Street Journal. Another article details this phenomenon in even greater detail in an article entitled: Soak the rich, lose the rich.

ABC transcript from last spring’s debate:

GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.

But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.

And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.

And you can’t do that for free.

OBAMA: And you can’t take out a credit card from the Bank of China in the name of our children and our grandchildren, and then say that you’re cutting taxes, which is essentially what John McCain has been talking about.

And that is irresponsible. I believe in the principle that you pay as you go. And, you know, you don’t propose tax cuts, unless you are closing other tax breaks for individuals. And you don’t increase spending, unless you’re eliminating some spending or you’re finding some new revenue. That’s how we got an additional $4 trillion worth of debt under George Bush. That is helping to undermine our economy. And it’s going to change when I’m president of the United States.

GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

OBAMA: Well, that might happen, or it might not. It depends on what’s happening on Wall Street and how business is going. I think the biggest problem that we’ve got on Wall Street right now is the fact that we got have a housing crisis that this president has not been attentive to and that it took John McCain three tries before he got it right.

And if we can stabilize that market, and we can get credit flowing again, then I think we’ll see stocks do well. And once again, I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.

Mr. Obama was asked about the fact that lowering taxes results in an increase government revenue and he didn’t seem to care. He was more interested in his idea that taxes create “fairness”. In Massachusetts, fairness means that the middle class now has to make up the revenue shortfall caused by 1,000 millionaires leaving the state. Do you think the Massachusetts legistlature will ever consider lowering taxes so that those millionaires move back?

Don’t hold your breath.

Photo by Joe Schlabotnik