Mail Magazine 24
Where in the world have tax increases made things better?
by Matt Purple 

The left and much of the center are launching a scorched-earth assault against the right's position on taxes. 

Republicans are being told they must hike taxes on top earners if they're serious about paying down the debt. Grover Norquist is being portrayed as a mad sorcerer, staggering around and misfiring spells in fits of pique while his entranced minions slowly come to. Here in Washington, meaningless buzzwords are fluttering through the air like dead autumn leaves. "Serious." "Hostage takers." "Reality-based community." "Balanced approach." 

The last of those terms might be the most amusing. President Obama's initial fiscal cliff plan was repeatedly lauded as a "balanced approach." On one hand, Democrats got tax hikes on the top earners. And on the other hand, Democrats got $200 billion in stimulus. Even-steven, you see. 

But let's examine the plan's main provision and President Obama's loudest podium-thumper: the tax hikes on top earners. If passed, rates for the top two tax brackets would increase from 33% and 35% to 36 and 39.6% respectively, tax rates on capital gains would go up from 15% to 23.8%, and the top rate on dividends would skyrocket from 15% to 43.4%. The president's accountants claim this would raise $1.6 trillion over the next decade without slowing down the economy. 

If that were true, it would be worth consideration. Conservatives like low taxes, but the overriding concern right now must be paying down the debt. $160 billion per year might be a drop in the bucket, but enough drops fill up. 

The problem is it's not true. Raising taxes only makes things worse. The vintage conservative nostrums about higher taxes reducing revenue and enervating economies still hold. 

Look at Great Britain where former Prime Minister Gordon Brown pushed through a tax hike shortly before voters booted him in 2010. Wealthy earners saw their rate increase from 40% to 50%. The top rate for capital gains also shot up 10%. 

The results have been catastrophic for Britain's economy. In 2010, there were more than 16,000 people in Britain declaring income of 1 million pounds or more. With Brown's new taxes, that number dropped to just 6,000 as the wealthy either left Britain or trimmed their income to avoid taxation. Earlier this year, under Conservative Prime Minister David Cameron, the government announced it would drop that rate from 50% to 45%. Since then, the number of residents declaring 1 million pound incomes is up to 10,000. 

Higher tax rates lead to fewer millionaires; lower tax rates lead to more millionaires. It's as clear an illustration as you'll ever see. And far from increasing revenue, Brown's tax burden actually cost the treasury 7 billion pounds. Britain's economy has stalled since Conservatives took power, leading various Krugmanians to reflexively scream "AUSTERITY!" every time they hear an English accent. Britain's recession is complicated but one of its real causes is surely "TAXES!" 

Across the channel in France, Socialist President François Hollande is trying to mend his country's crumbling finances with a host of new taxes. The most lacerating one is a 75% income tax rate on millionaires. Also included are new taxes on capital gains, a hike in inheritance charges, and an exit tax for those selling their companies. 

The question now isn't whether wealthy French will leave, but how many. The New York Times quoted one tax specialist saying the exodus wouldn't be limited just to millionaires, but also to up-and-coming entrepreneurs with six-figure incomes. Fleeing businessman Jean-Emile Rosenblum summed it up as only the French can: "France is no longer a sexy place to be.… With all the costs, the taxes, and the social pressure, France looks more like an old maid to me." 

We can add French voluptuousness to the list of things progressive economists have ruined. Expect the usual consequences: fewer millionaires, less investment, less revenue, and slower growth. 

Then there's that other exotic republic being run into the ground by socialist technocrats: Connecticut. The Nutmeg State crushed its residents with a landslide of tax increases in 2011. There were hikes on most incomes, sales tax increases, reduced exemptions, and new fees on just about everything, amounting to $2.6 billion over two years. 

Among the wreckage in Connecticut, according to Jillian Kay Melchior, is a $365 million budget deficit, more than six times what Governor Dannel Malloy initially estimated. Meanwhile, revenue raised from high earners was lower than expected. As Melchior notes, Connecticut's "remaining residents must know that another state is never more than 50 miles away." 

Starting in 2007, Maryland, under the leadership of progressive rising star Martin O'Malley, raised taxes 24 times to the tune of some $2.4 billion. Maryland's wealthy promptly fled across the border to business-friendly Virginia. A study by the conservative group Change Maryland found that the Old Line State had lost over 31,000 residents since 2007, the most of any mid-Atlantic state. A $1 billion deficit is projected for 2013. 

None of these examples is perfectly analogous with the United States as a whole. But they do suggest an underlying principle: well-intentioned tax hikes lead to fewer high-income earners, less revenue, and unexpectedly ballooning budget gaps. It would be nice if we could raise taxes exclusively on the super-rich while not slowing the economy; everyone should sacrifice to pay down the debt, after all. But the comparative evidence suggests that doesn't happen. 

Serious People in Washington can haul out their projections. They can reassure themselves of their gargantuan intelligence and somberly denounce Republican extremists. But if they want to increase taxes, they also have to explain why their policies don't seem to be working anywhere. 

Source: the American Spectator (spectator.org) 

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