NCPA - National Center for Policy Analysis


April 16, 2010

When it comes time for tax hikes to pay for all the spending we're doing with borrowed money, Washington just figures that the "rich" will pay, says Nicole Gelinas, a senior fellow with the Manhattan Institute. 

Case in point: 

  • President Obama seems certain to let the Bush tax cuts for upper-income Americans expire -- so in January the top rate will jump back to 39.6 from 35 percent.
  • Two years later, a new 3.8 percent tax kicks in on investment income earned by families who make $250,000 and up (part of the health care bill).  

Thing is, the rich already do pay.  And when it comes time to pay for all of the spending we're doing now, the rich may not be able or willing to pay even more, says Gelinas: 

  • Taxpayers earning over $200,000 paid more than 54 percent of federal income taxes in 2007, way more than the 32 percent of the nation's income they earned.
  • In New York, the rich pay even more; families above the $200,000 mark pay nearly 67 percent of the Empire State's share of federal income taxes.
  • It's the same with New York's state and local taxes; Mayor Bloomberg regularly notes that 40,000 families making a half-million or more pay nearly half the city's income taxes, and these same people pay a similarly outsized share of state taxes.  

But there's a limit to how much the government can get, says Gelinas.  Last year, New York hiked income taxes on people who earn more than $200,000. But, as E.J. McMahon of the Empire Center for New York State Policy noted last month, the expected take from that tax hike seems likely to come in half a billion below estimates. 

There's good reason to think Obama's tax hikes on the rich will fall short, too, says Gelinas.  Although  federal taxpayers can't leave the country as easily as a handful of Bloomberg's Upper East Side neighbors can leave New York, they can park more money in tax-free investments or simply decline to earn it in the first place.  Such tax-avoidance is perfectly legal -- but it means less economic growth, and thus less income earned by everyone else. 

Source: Nicole Gelinas, "How Soaking the Rich Clobbers You," New York Post, April 14, 2010. 

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