Taxes and its effect on Jobs

[domtoni]

As you all know, the Bush tax cuts will expire at the end of the year. I spoke to a family member, who has a Chicago based business, and he said that he will cut jobs, make his people work harder, and maintain his same income.

The point this family member made is:
- unemployment will grow
- people will work harder
- the government will collect less in tax revenue and have to borrow more money pushing up the debt and the deficit

This article from Automotive News shows the effect on taxation (and government give backs) and its effects.

Italy gives Fiat too little and asks too much

 

[Cliff Beer]

domtoni, your family member is onto something there, and that's the normal reaction.

But these's things (tax rates v. tax revenues v. unemployment v. GDP etc.) work according to an optimization curve. Meaning, suppose we took the premise that lower taxes means more employment which in turn means greater tax revenues to its logical extreme: a 0% tax would mean a whole lot of new jobs but absolutely no tax revenues. In other words, these things operate within a range, and start to fall apart at the extremes.

I think a more important point, but one which is more subtle, is the composition of the rate structure. For example, a highly progressive rate scheme - say getting up to 50-60% on incomes of $1MM or more could raise a lot of money for the US gov't. Take a look at the changing wealth demographics of the US - now, the wealthiest 1-2% of the US population owns something like 55% of the total wealth. This is dramatically up from the 50's and 60's when it was more like 30%. Basically, now, the ultra-wealthy own a vastly disproportionate amount of the total wealth. Said another way, the rich are getting richer, and the poor are getting poorer and much greater in numbers on a relative basis, and the middle class is shrinking out of existence.

There are a lot of factors at work here causing these economics changes - things like the almost complete offshoring of production of tangible goods to China (lost middle-income jobs), out-of-control executive pay, non-progressive taxing schemes, deregulation of the financial services industry, etc.

Something's got to give. If one looks back in history, when the delta and proportional spread between the rich and poor gets too exteme then inevitably revolt and anarchy results. The rich get too greedy and self-serving, the poor have nothing to lose, and pretty soon we're burning flags and shooting at eachother in the streets. Think French Revolution, American Revolution, Communist Revolution in Russia - all have the common thread of a large poor population with not much to lose revolting against the power held by an obviously wealthy and elite governing class.

A more progressive tax would go a long way to helping to bring some balance back - something like a 50% tax rate on incomes of a $1MM or more. How much money does a person need to lead a comfortable life and still appropriately reward hard work and career success?

Of course, then the ultra-rich go hire tax attorneys to find ways to shelter income and wealth, and also start giving more money to D.C. lobbyists who immediately go to work trying to tear down the support for a more progressive taxing scheme and we're back to square one and the tax-cut-tax-hike cycle continues..... What a sham, and a total waste of time and energy.

 

[domtoni]

The great dilemma of today, but in simple terms, those who can create jobs, will not. Its that simple. Without jobs, the situation will get worse. For me, its that simple.

I should have said that all of these corporations are hording cash, and the last number I saw indicated that American Corp. business has something like $2 trillion in cash. This doesn't create anything.

For people that have created wealth for many, you will have difficulty telling them that they should limit their income to no more than $1 million. While I agree that one can live well on that sum, this will smack of socialism.

I do have an issue however with superstar status for Corporate Executives, who are paid ridiculous sums for their work. The whole basis of this compensation scheme was for the participants to create shareholder wealth. Have we seen this done in the past decade?

 

[Al Wohlstrom]

You get more by reducing income tax (people spend more) and reducing tax to small business (creates more small business and small business's hire more people)
How important are small businesses to the U.S. economy?
Small firms:
• Represent 99.7 percent of all employer firms.
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll.
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic
product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced
30.2 percent of the known export value in FY 2007.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
Source: U.S. Dept. of Commerce, Bureau of the Census and International Trade Admin.; Advocacy-funded research by Kathryn Kobe, 2007 (www.sba.gov/advo/research/rs299tot.pdf) and CHI Research, 2003 (www.sba.gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor Statistics.
What share of net new jobs do small businesses create?
Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008. Continuing firms accounted for 68 percent of net new jobs, and the other 32 percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 2007).
Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employment
Dynamics. Note that the methodology used for the figures above counts job gains or losses in the actual class size where they occurred.

 

[domtoni]

A point we forgot to mention, the bulk of the small businesses in the USA are Chapter S corporations, ie the companies taxes are taxed on the owners' 1040 as his/her personal income.

One other significant point my cousin made is this:
- after 1/1/2011, you will only be able to write off $3000 in losses on your stock investments
- you will pay the higher capital gains taxes

How would you invest when the deck is stacked against you?

Sell out of stocks and buy depressed real estate. What does that mean.

Sell stocks and take the write offs while one can, buy depressed residential housing, sit on it, try to rent it, keep a 0 cash flow, and when the climate changes, sell it for a higher price.

 

[Mike Christian]

As an owner (past and present) of a couple of small businesses, I can say that rising taxes never determined my hiring or firing practices. Raising taxes only motivates me to make more money.

 

[Jim Nielsen]

We don't need new taxes. What is needed is stop govt outrageous spending. There is so much waste it is not funny. I dont work for the govt but I work on a govt contract. The things I see would make you sick. The attitude of many supervisors is it is not about saving money. I have actually heard this said. I see these contract over runs that the govt pays to companies. Sometimes it is the govts fault as they had some inept idiot do the design specs for the project and they had no experience. I have seen systems delivered and do not work as designed. Well the govt alreadypaid for it so you have to make it work to some extent.
Did anyone ever wonder why a politician can make 200k per year and be a millionair in 2 years? It is never going to get better untill we get public servants back in office. The people in there are not interrested in anything but themselves.

.02
Jim

 

[domtoni]

Larry Kudlow's comments.

It's a Fiscal Problem, Not a Fed Problem

 

[Bill Musarra]

This is an email I received that I know for a fact "most" is true. I can't vouch for it all, but it is going to impact all of us one way or another. Yes it is a little dated, but still. Even with most of it as true, I feel it will have a devastating effect on the economy, businesses and personal well being. Businesses will be pulled in to this mess as well. Balance sheets will change and with that, so will business. With the multiple hits that are predicted here, your effective tax rates will be much higher than the rates mentioned herein.
Maybe if the Repubs take over the House they can do a quick fix and correct some of this inequality before the end of the year????
If any of you know that any parts of this are untrue, have been altered, or removed(or added to), please add to this thread for clarification.

Three great waves:


​

In just six months, on January 1, 2011, the largest tax hikes in the history of America will take effect.

They will hit families and small businesses in three great waves.

OnJanuary 1, 2011, here’s what happens... (read it to the end, so you see all three waves)...



First Wave:


Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts forinvestors, small business owners, and families.

These will all expire on January 1, 2011.



Personal income tax rates will rise.

The topincome tax rate will rise from 35 to 39.6 percent (this is also the rateat which two-thirds of small business profits are taxed).

Thelowest rate will rise from 10 to 15 percent.

All the rates inbetween will also rise.


Itemized deductions and personal exemptionswill again phase out, which has the same mathematical effect as highermarginal tax rates.


The full list of marginal rate hikes is below:




​

• The 10% bracket rises to an expanded 15%
• The 25% bracket rises to 28%
• The 28% bracket rises to 31%
• The 33% bracket rises to 36%
• The 35% bracket rises to 39.6%

Higher taxes on marriage and family.

The"marriage penalty" (narrower tax brackets for marriedcouples) will return from the first dollar of income.


The child taxcredit will be cut in half from $1000 to $500 per child.


Thestandard deduction will no longer be doubled for married couples relativeto the single level.


The dependent care and adoption tax creditswill be cut.


The return of the Death Tax.

This yearonly, there is no death tax. (It’s a quirk!)For those dying on or after January 1,2011, there is a 55 percent
top death tax rate on estates over $1 million. A person leaving behind two homes, a business,a retirementaccount, could easily pass along a death tax bill to their loved ones. Think of the farmers who don’t make much money, but their land, which they purchased years ago with after-tax dollars, is now worth a lot of money. Their children will have to sell the farm, which may be their livelihood, just to pay the estate tax if they don’t have the cash sitting around to pay the tax. Think about your own family’s assets. Maybe your family owns real estate, or a business that doesn’t make much money, but the building and equipment are worth $1 million. Upon their death, you can inherit the $1 million business tax free, but if they own a home, stock, cash worth $500K on top of the $1 million business, then you will owe the government $275,000 cash! That’s 55% of the value of the assets over $1 million! Do you have that kind of cash sitting around waiting to pay the estate tax?



Higher tax rates on savers and investors.

The capital gains tax will rise from 15 percent this year to 20 percent in2011.

The dividends tax will rise from 15 percent this year to 39.6percent in 2011.

These rates will rise another 3.8 percent in 2013.



Second Wave:

Obamacare


There are over twenty new or higher taxes in Obamacare. Several will first go into effect onJanuary 1, 2011. They include:



The "Medicine Cabinet Tax"

Thanks to Obamacare, Americans will no longer be able to use healthsavings account (HSA), flexible spending account (FSA), or healthreimbursement (HRA) pre-tax dollars to purchase non-prescription,over-the-counter medicines (except insulin).


The "Special Needs Kids Tax"

This provision of Obamacare imposes a cap on flexible spending accounts (FSAs)of $2500 (Currently, there is no federal government limit). Thereis one group of FSA owners for whom this new cap will be particularlycruel and onerous: parents of special needs children.

There arethousands of families with special needs children in the United States ,and many of them use FSAs to pay for special needs education.

Tuition rates at one leading school that teaches special needs childrenin Washington , D.C. ( National Child Research Center ) can easily exceed $14,000 per year.

Under tax rules, FSA dollars can not be used to pay for this type of special needs education.


The HSA (Health Savings Account) Withdrawal Tax Hike.

This provision of Obamacare increases the additional tax on non-medical early withdrawalsfrom an HSA from 10 to 20 percent, disadvantaging them relative to IRAsand other tax-advantaged accounts, which remain at 10 percent.




Third Wave:

The Alternative Minimum Tax(AMT) and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011,they'll be in for a nasty surprise-the AMT won't beheld harmless, and many tax relief provisions will have expired.

The major items include:


The AMT will ensnare over 28 million families, up from 4 million last year.

According to the left-leaning Tax Policy Center , Congress' failure to index the AMT will lead toan explosion of AMT taxpaying families-rising from 4 million lastyear to 28.5 million. These families will have to calculate theirtax burdens twice, and pay taxes at the higher level. The AMT wascreated in 1969 to ensnare a handful of taxpayers.


Small business expensing will be slashed and 50% expensing will disappear.

Small businesses can normally expense (rather than slowly-deduct, or"depreciate") equipment purchases up to $250,000.

Thiswill be cut all the way down to $25,000. Larger businesses cancurrentlyexpense half of their purchases of equipment.

In January of 2011,all of it will have to be "depreciated."


Taxes will be raised on all types of businesses.

There are literally scores of tax hikes on business that will takeplace. The biggest is the loss of the "research andexperimentation tax credit," but thereare many, many others. Combining high marginal tax rates withthe loss of this tax relief will cost jobs.


Tax Benefits for Education and Teaching Reduced.

The deduction for tuition and fees will not be available..

Tax creditsfor education will be limited.

Teachers will no longer be able todeduct classroom expenses.

Coverdell Education Savings Accountswill be cut.

Employer-provided educational assistance iscurtailed.

The student loan interest deduction will be disallowedfor hundreds of thousands of families.


Charitable Contributions from IRAs no longer allowed.

Under current law, a retired person with an IRA can contribute up to$100,000 per year directly to a charity from their IRA.

Thiscontribution also counts toward an annual "required minimumdistribution." This ability will no longer be there.



PDF Version Read more: <" target=_blankhttp://www.atr.org/six-months-untilbr-largest-tax-hikes-a5171>;; Six Months to Go Until
The Largest Tax Hikes in History


And worse yet?


Now, yourinsurance will be INCOME on your W2's!

One of the surpriseswe'll find come next year, is what follows - - a little"surprise" that 99% of us had no idea was included in the"new and improved" healthcare legislation . . . thedupes, er, dopes, who backed this administration will beastonished!

Starting in 2011, (next year folks), your W-2 tax form sent byyour employer will be increased to show the value of whateverhealth insurance you are given by the company. It does notmatter if that's a private concern or governmental body ofsome sort.

If you're retired? So what... your grosswill go up by the amount of insurance you get.

You will be required to pay taxes on a large sum of money that youhave never seen. Take your tax form you just finishedand see what $15,000 or $20,000 additional gross does to yourtax debt.. That's what you'll pay next year.

Formany, it also puts you into a new higher bracket so it's evenworse.



This is how the government is going to buy insurance for the15% that don'thave insurance and it's only part of the tax increases.

Not believing this??? Here is a research of thesummaries.....

On page 25 of 29: TITLE IX REVENUEPROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec. 9001,
as modified by sec. 10901) Sec.9002 "requires employersto include in the W-2 form of each employee the aggregate cost ofapplicable employer sponsored group health coverage that isexcludable from the employees gross income."



- Joan Pryde is the senior tax editor for the Kiplinger letters.
- Go to Kiplingers and read about 13 tax changes thatcould affect you. Number 3 is what is above.

 

[Cliff Beer]

Where we need some new taxes is taxes on the ultra-wealthy - individuals with net worth of $20,000,000 or more. The ultra wealthy hire teams of tax attorneys to lessen their tax bills and often pay very low effective rates through sophisticated tax strategies - frequently less than 10% a year effective rate on their incomes. How do I know this? Because I was one of those tax attorney specialists, earlier in my professional career. These folks should, instead, be paying 40% or more. In most european countries the ultra-wealthy are subject to 60% tax or more.

Small business owners need to pay their fair share of tax too. Yes, small businesses provide jobs for others, but small businesses also generate a lot of wealth for their owners in many cases, and those owners need to pay as well. After all, the opportunity to have and run a small business is a privilege afforded by a predictable and regulated business environment which is, for the most part, created by government control. Doubt that? Try owning and running a business in Latin America or eastern Europe or the Middle East or Africa or most of Asia and you know what I'm talking about.

 

[Bill Musarra]

Cliff,
You have just stated the best reason to institute the Fair Tax.
FairTax - Wikipedia, the free encyclopedia

Americans For Fair Taxation:

This moves the power of taxation back to the people and out of the hands of government(assuming that a super majority is required for increases). It simplifies the code and removes the class warfare argument. The more you spend, the more you pay. Since rich people spend more than the poor, they pay more. There are rebate/prebates for the truely needy.

For those that want to argue against it here you go. (Although I think some of the arguments are a bit petty. The only one I don't know the answer to is the gasoline tax issue, but I will dig it up.)

The Fair Tax Fraud - Laurence M. Vance - Mises Daily

By the way, if you plan to argue against this, please read the book first. Don't throw out what you think, cause it probably ain't right.
I am no expert, but I have read extensively and heard most of the arguments and heard several lectures on it from the authors. Neal Boortz is here in Atlanta and John Linder is my congressman until January. Then Rob Woodall will replace him(I hope).

For jobs, I think they need to remove the taxation on corps. that have foreign holdings. That would immediately bring something like 30 Billion back to the U S.They don't want to be double taxed, so they keep it over there(where ever that is). I am sure this wording isn't correct. Guess you can tell I am not a business person.

Bill

 

[Al Wohlstrom]

Cliff,
You have just stated the best reason to institute the Fair Tax.
FairTax - Wikipedia, the free encyclopedia

Americans For Fair Taxation:

This moves the power of taxation back to the people and out of the hands of government(assuming that a super majority is required for increases). It simplifies the code and removes the class warfare argument. The more you spend, the more you pay. Since rich people spend more than the poor, they pay more. There are rebate/prebates for the truely needy.

For those that want to argue against it here you go. (Although I think some of the arguments are a bit petty. The only one I don't know the answer to is the gasoline tax issue, but I will dig it up.)

The Fair Tax Fraud - Laurence M. Vance - Mises Daily

By the way, if you plan to argue against this, please read the book first. Don't throw out what you think, cause it probably ain't right.
I am no expert, but I have read extensively and heard most of the arguments and heard several lectures on it from the authors. Neal Boortz is here in Atlanta and John Linder is my congressman until January. Then Rob Woodall will replace him(I hope).

For jobs, I think they need to remove the taxation on corps. that have foreign holdings. That would immediately bring something like 30 Billion back to the U S.They don't want to be double taxed, so they keep it over there(where ever that is). I am sure this wording isn't correct. Guess you can tell I am not a business person.

Bill

This is a great tax plan because everyone buys goods and everyone would pay taxes on those goods, even those on welfare would buy goods and pay taxes for a change. Plus it's idiot proof, no more filing income tax. But it will never fly. The reason? It takes all control away from the government, which is a good thing, but won't happen.

 

[Cliff Beer]

Cliff,
You have just stated the best reason to institute the Fair Tax.
FairTax - Wikipedia, the free encyclopedia

Americans For Fair Taxation:

This moves the power of taxation back to the people and out of the hands of government(assuming that a super majority is required for increases). It simplifies the code and removes the class warfare argument. The more you spend, the more you pay. Since rich people spend more than the poor, they pay more. There are rebate/prebates for the truely needy.

For those that want to argue against it here you go. (Although I think some of the arguments are a bit petty. The only one I don't know the answer to is the gasoline tax issue, but I will dig it up.)

The Fair Tax Fraud - Laurence M. Vance - Mises Daily

By the way, if you plan to argue against this, please read the book first. Don't throw out what you think, cause it probably ain't right.
I am no expert, but I have read extensively and heard most of the arguments and heard several lectures on it from the authors. Neal Boortz is here in Atlanta and John Linder is my congressman until January. Then Rob Woodall will replace him(I hope).

For jobs, I think they need to remove the taxation on corps. that have foreign holdings. That would immediately bring something like 30 Billion back to the U S.They don't want to be double taxed, so they keep it over there(where ever that is). I am sure this wording isn't correct. Guess you can tell I am not a business person.

Bill

Bill,

I get the idea....the more you consume, the more tax you pay...and it's a good idea in theory, but it falls down in practice when it comes to the ultra wealthy. Why? Because with respect to the ultra wealthy, on a proportional basis to their income they consume far less. In other words, if you're an average american, you spend just about exactly what you earn....so you would be paying the consumption tax on your full income. The ultra wealthy spend far less than they earn (that's one reason why they got wealthy in the first place....), so, their effective rate relative to their income would be very small - maybe 2% for many/most. To put some numbers to it, suppose you're net worth is $20,000,000 and you make $2,000,000 year in income. Most of the folks in this category spend about $400,000 year on taxable consumption (I know this because I used to do their tax prep and planning). And, suppose the consumption rate was a flat 10%....these folks would have an effective rate of 2%. while the guy who makes $100,000 year, and spends $100,000 year has an effective rate of 10%. Again, the ultra wealthy pay a lot less tax on a percentage basis.

Bottom line is that the ultra wealthy are the people in control. They control large corporations (they are often the senior people in large corporations), they control Wall Street, they control Washington D.C. (either as politicians themselves, or more commonly through lobbyists), and they control state-level government too. Consequently, they are in control of what taxing scheme is in effect and they will fight with every dirty trick in the book to make sure they continue to get away with paying little or no tax while the working guy is paying his 25% like clockwork by way of withholdings on his earnings. It's really a pretty grim situation if you understand what's really going on. The rich are getting (a lot) richer while the poor are getting poorer.

If you look back in history, both US history and also European history since the Middle Ages, when the spread between the rich and the poor gets as extreme as it is now, then, without fail, revolution and anarchy results shortly thereafter. I think we're headed for big, big trouble in the next 10-50 years....

 

[Bill Musarra]

Cliff,
I agree with most of what you say due to your experience. However you are working with math to justify your ends. I believe I am saying that right. Its just the math. The ultra wealthy won't have a way to finagle the tax laws, cause there won't be any to manipulate. Maybe their corporations might have some, but the cost is passed on to the consumer as it is today. They can play with that all they want. I personally think the corporate tax rate should be 0. Then you would have every corporation in the wold fighting to get into this country. stimulating more jobs than even Regan did.
The guy making 100K doesn't have to spend all his money. He can spend however much he wants, up to his limit. Be it 50,000 or 100. His choice. The ultra rich can do the same. If they want to jet set all over the world. Fine, go for it. Remember they will need their private plane, their staff and whatever else they need. All the time paying the sales tax along the way(and no wayto get around it). Remember that the cost of goods will not go up with this plan. All the imbeded taxes added on during the manufacturing stages goes away leaving you with basicly the same prices you pay today. Also remember it only works on NEW items. Used items like cars etc. are exempt, which should reduce the cost of ownership. The rich are still going to pay more because they consume more. You are just hung up on the fact they make so much more and the math of it is that they have so much more left over once they have spent what they want. No rule says you have to spend all your money. You can save all you want or feel the need for. You now get your entire paycheck and you don't have to keep worrying what your property tax is going to be next year. Government will be forced to live within their budget(money that comes in). That isn't a bad thing.
Also remember that with this plan you actually pay less for the goods and services because you don't have to pay any taxes above the cost(sales taxes) of the item, which is the same price that it was under the old system. I think it is a win win situation, with the exception of the government, which is why it probably won't get passed until we get enough people in office who believe in limited government and less in the power of ones importance.

Bill

 

[Kevin L]

I hesitate to respond to anything political on this forum right now since the paddock is quite a "lively" place these days but... here it goes.

Bill, let me start by saying that I really like a plan that taxes based on consumption rather than a plan that bases on income.

With that said, I want to point out at least one reason why some individuals would suggest that it is not a fair taxation policy (I repeat, this is not me making the assertion; it is only a different perspective).

As Cliff appropriately stated, a taxation policy only based on consumption results in the rich end up paying less taxes as a proportion of their income than individuals that make less. The reason is that even when the rich consume a lot (aka jets, ferrari's etc), a person making 40K would spend a much greater proportion of their total income on consumption (and therefore taxes) than a wealthy person; to simply live. You mentioned that there is no rule that you need to spend all of your money. I agree but there is an implied requirement to spend on food and shelter.

As Cliff stated the effective tax rate of a person making $2M is 2% while a person making 100% is 10%. If I followed Cliff's example correctly, taking that further, a person making 50K would result in a rate of over 20%.

One might suggest that a consumption based tax policy could result in a greater incentive to work hard, get paid more, and save more....but alas, I am not going to go down that road or the potential unintended consequences that could result.

Again, I like consumption based taxation, I am simply trying to offer a perspective that I have read about.

Kevin

 

[tom pritchett]

Of course, the fairest of all is the flat tax. Everyone pays the same percentage across the board, make it simple and don't allow any deductions. A percentage feels the same to a poor person as to the ultra wealthy. Once again, it cannot be instituted because the control goes away.

 

[Kevin L]

Of course, the fairest of all is the flat tax. Everyone pays the same percentage across the board, make it simple and don't allow any deductions. A percentage feels the same to a poor person as to the ultra wealthy. Once again, it cannot be instituted because the control goes away.

I agree... I believe that no matter how much someone makes, they should pay something. That something could be as low as $100/year if the economics make sense due to their standard of living.

I really feel that human nature is such that at a macro level, citizens takes advantage of free things. Therefore to ensure every citizens has some sense of responsibility and inclusion of their country; everyone should pay something... I believe that the government is doing more harm than good by allowing 40%+ of citizens not to pay any federal income tax.

 

[Jim Craik]

Tom ,Kevin,

I agree 100%

Everone should pay their fair share. Or at least something. Kevin you comment about giving all citizens a sence of responsibility and feeling part of society no matter how small their part is, can be very important.

 

[domtoni]

Iowans for Discounted Taxes - from a University friend:

Iowans for Discounted Taxes - Tax Relief for Iowa

Should have also mentioned that Iowa's state income tax is close to 10%.

 

[Bill Musarra]

An article by Michele Malkin.

Do Americans share President Obama's desire to impose redistributive social justice on the well off? In liberal Washington State, of all places, voters gave a definitive answer this Tuesday: No! The resounding rejection of a punitive "Robin Hood" initiative shows that it's not just red-state Republicans who oppose extreme tax hikes on the nation's wealth generators.
As Capitol Hill resumes debate on whether to extend the so-called "Bush tax cuts," the White House should pay special heed to the fate of little-noticed Initiative 1098. Its defeat by a whopping 65-35 margin doesn't bode well for Team Obama's class warriors still clinging bitterly to their soak-the-rich schemes. Treasury Secretary Tim Geithner insisted this summer that saddling higher earners with higher taxes was "the responsible thing to do." Given the chance to weigh in at the ballot box, a diverse majority of voters in the other Washington determined otherwise.
The Evergreen State is just one of seven states in the nation without a personal income tax. The ballot measure, which would have enacted a state income tax on the wealthiest 1 percent of Washington residents to raise $2 billion for bankrupt public schools, was sponsored by Microsoft founder Bill Gates and his left-wing corporate lawyer father. Top donors? The Service Employees International Union, whose state and national chapters threw in a combined $2.5 million of its members' hard-earned dues money, and the National Education Association, which pitched in nearly $760,000.
Hiding behind kiddie human shields, the I-1098 campaign assailed the wealthy for "not paying their fair share" and plastered their campaign literature with sad-faced students and toddlers. Big Labor has been pushing a punish-the-wealthy movement for months. According to Forbes magazine, "six of the 10 states with the highest income tax rates -- Oregon, California, Hawaii, New York, New Jersey and North Carolina -- raised their levies on high earners, at least temporarily" last year.
But business owners large and small, representing companies from Bartell Drugs to Amazon.com, successfully fought back against the job-killing measure in Washington State. Disavowing the Gateses, Microsoft honcho Steve Ballmer also joined the opposition. The software company's senior executives expressed grave concern "about the impact I-1098 will have on the state's ability to attract top tech talent in the future." Liberal newspaper editorial boards including the Seattle Times and Tacoma News Tribune added their objections, citing I-1098's reckless targeting of wealth-creation in the middle of a recession and the inevitable extension and increase of income taxes to the middle class. And economists at the independent, nonpartisan Beacon Hill Institute at Suffolk University found that I-1098's tax burdens would lengthen and deepen the current economic downturn by destroying private sector jobs, reducing residents' disposable income and prolonging the state's high unemployment rate.
Amber Gunn of the free-market Evergreen Freedom Foundation in Olympia, Wash., gave the bottom line on I-1098's unreality-based advocates: "Initiative proponents like to operate in a Keynesian world where higher tax rates and their effects on human behavior and competitiveness among states don't matter. But those effects are present in the real world and must be accounted for."
I-1098's promoters tried to disguise their wealth-suppression vehicle as tax "relief" by tossing in a few stray targeted cuts. But they were called out by a judge and slapped with a court order to make the income tax burden explicit in the ballot title.
If only the taxmen in Washington, D.C., were required to do the same. Obama's budget proposal is a soak-the-rich scheme adorned with a few business tax breaks that would -- for starters -- impose nearly $1 trillion in higher taxes on couples making more than $250,000 and individuals making more than $200,000. Some "relief."
On Thursday afternoon, still smarting from the nationwide "shellacking" the Democrats received on Election Day, White House spokesman Robert Gibbs signaled that Obama would be willing to "entertain" temporary -- not permanent -- tax relief for the nation's highest earners. But a time-limited reprieve in prolonged economic hard times is expedient politics and bad policy. Tax relief should be all or none. The new House majority should force the Democrats to choose.
Republicans must stop allowing the White House to demonize America's entrepreneurs and producers. By continuing to refer to them as beneficiaries of the "Bush tax cuts" instead of as the besieged victims of Obama tax increases, the GOP cedes the moral high ground. It's time to make the White House own its noxious war on wealth.