Top marginal tax rates soared during the Great Depression from 25% to 80%. I do not expect to see anything like that in this recession but we do see that many states are attempting to fill their budget shortfalls by sharply increasing taxes on their richest residents.
Take a look at page A4 of today’s Wall Street Journal, “States Try to Tap High Earners”.
Under a proposal by Gov. David Paterson, New York would follow California and Maryland in pushing its top earners into higher tax brackets that are several percentage points more than what most earners pay. And New Jersey is considering raising its top-tier income taxes even higher, to more than 10% compared with the 5.25% marginal rate paid by most households.
Several states are considering similar solutions as they face diminished revenue, yawning budget gaps and a populist political climate.
Seems fair some might say. Let the highest earners pay more income taxes to soften the blow to those most vulnerable. Trouble is that it always seems to do more harm than good. The WSJ continues:
Critics say the planned increase wouldn’t hit just those in the financial industry. Small-business owners in New York are especially piqued, business groups say. Many report their business earnings on their personal income-tax returns and fear the additional tax load will constrict their enterprises. “You eliminate their ability to hire new employees, buy equipment, finance an expansion,” said Mike Elmendorf, state director of the National Federation of Independent Businesses.
A 2008 analysis by the libertarian Cato Institute found that higher taxes suppressed economic growth and that locales that imposed an income tax to generate revenue had poorer growth rates than places that chose alternative taxes.
It’s happening all over NJ. People are leaving. If they lose their jobs they don’t even bother looking for a new one in the NY metro area. Why? It does not pay to try to be upwardly mobile. A friend I have known for 30 years is moving to the South after her husband lost his job; two weeks later she’s gone!
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