Issues & Insights
"And each time the top rate was hiked to “soak the rich,” it was used as cover to raise taxes on the middle class. When George H.W. Bush raised the top rate in 1990, he also raised taxes on things like beer, cigarettes, and gasoline."
"When Washington lawmakers were debating the state’s first-ever income tax, Gov. Bob Ferguson said the 9.9% rate on incomes above $1 million “represents historic progress in rebalancing our unfair system.”
And at first blush, you can see why Washingtonians might agree with him. The new tax promises, after all, to raise $3.7 billion from fewer than 0.5% percent of the state’s taxpayers, with the money going toward such wonderfulness as education, child care, and expanded low-income tax credits.
The middle-class families in that state are in for a rude awakening.
First, the tax isn’t likely to collect anywhere near $3.7 billion, as the wealthy figure out ways to hide their income or just pack up and leave for places that don’t treat them like slot machines.
That’s been the case with other “tax the rich” schemes. A paper published by the National Bureau of Economic Research found that the revenues from California’s 2012 tax-the-rich scheme generated about half as much new revenue as expected.
Already, Starbucks founder Howard Schultz announced plans to relocate from Washington to Florida (which has no income tax).
As Nathan Goldman put it in Forbes, “The question now arises of whether more will follow and if Washington is equipped to financially handle a mass exodus of high earners out of its state.”
Where is the state going to go to make up the shortfall? History has the answer.
When the federal government first imposed an income tax in 1913, it was very much like a millionaire’s tax.
The law included a $3,000 personal exemption, which is equal to roughly $100,000 today. And even then, the rate was a mere 1% up to $20,000 (or $670,000 in today’s money). And the seven tax brackets topped out at 7% on incomes that in today’s dollars would exceed $17 million.
Just five years later, the personal exemption had been cut down to $1,000, the lowest bracket had been hiked to 6%, and there were 49 more tax brackets, with the top one set at 77% " . . . More...
