As we approach the due date for tax returns, it’s useful to reflect on the current mania for raising taxes on the rich. We have the Obama tax hike from 35 to 39.6 percent on top incomes; we also have the cap on deductions for charity. Now states–led by New York, California, New Jersey, and Connecticut–are getting in the act with so-called “millionaires’ taxes.” These are state income tax increases that extract an extra 8 to 10 percent on incomes above $500,000. Thus, in those states, we have a combined federal and state tax of almost 50 percent on the rich–and that doesn’t include social security tax, medicare tax, telephone tax, and sales taxes, which put the tax over 50 percent for many wealthy Americans.
No wonder Rush Limbaugh speaks of his life in New York in the past tense. Donald Trump says he has spoken to a couple dozen of his New York friends who are also in exit mode. Many others are on the way out to tax-friendly states like Florida.
The historical record is clear on this: When President Coolidge cut tax rates in the 1920s and President Reagan did the same in the 1980s, the result was expanded economic growth and low unemployment. Calvin Coolidge had the lowest misery index (unemployment plus inflation) of any president of the 20th century. When income tax rates were hiked–as they were under Herbert Hoover, Franklin Roosevelt, and Lyndon Johnson (in 1967)–the economy sputtered and wealthy Americans took their cash elsewhere.
Currently the top 1 percent of Americans pay 40 percent of all federal income taxes. I wonder how much more President Obama and his economic advisors think they should pay. We need a national debate on that point.