HJ-ED-DHJHerald Journal Columns
May 28, 2007, Herald Journal

Soaking the rich doesn’t work


Politicians often claim increasing taxes on rich people will give government all the money it needs, and it won’t have to tax the rest of us. This year, Minnesota DFLers called their proposed income tax increase on rich people, “property tax relief,” a euphemism if ever there was one.

First, there aren’t enough millionaires to go around. Even if government confiscated 100 percent of the income of all the millionaires and billionaires in the US, including the mega-rich rock stars, Hollywood types, and CEOs of the country’s biggest corporations, it wouldn’t even be enough money to wipe out the national debt. There just aren’t that many rich people.

Taxing the middle class is where the real money is.

Second, rich people can afford to hire tax lawyers. The lawyers work all day long looking for ways their clients can legally avoid paying taxes. That means the revenue the politicians get from soaking the rich will be a lot less than what they expected.

If politicians budget according to what they expect, and get less, guess who will make up the difference? Again, the middle class will.

Third, politicians claim rich people won’t change their behavior to avoid paying taxes. Even though the rich can afford to pay more, they avoid paying taxes just as much as the rest of us do.

In 1991, Congress put an excise tax on luxury boats. Members of Congress believed because only rich people bought yachts, it would be an easy, painless way to increase revenue.

What happened was very different. Rich people didn’t want to pay the tax. Sales in yachts dropped. The people who built yachts lost their jobs. The government lost income tax revenues from all the money lost in the yacht-building industry. In the end, the government lost more than it gained.

Congress quietly repealed the tax in 1993.

Finally, politicians already know the best source of taxpayer dollars is the middle class. Soaking-the-rich rhetoric is designed to give politicians enough time to create budgets larded with extra spending. It’s a delaying tactic.

Taxpayers will have about two years to adapt to the idea that government should be bigger, and spend more. No one will get property tax relief.

Then, when the budget shortfall happens, and it will, politicians will come to middle class taxpayers and say, “Look, we don’t have enough money to meet our commitments. Cough it up.”