Today the editorial pages of WSJ got not just one but two Democratic governors to inveigh against in "The Two Left Coasts" (pg A29) as both Governor Andrew Cuomo of my home state of New York and Gov. Jerry Brown have actually made the top income earners pay a fraction of state budget shortfalls. Naturally the WSJ editorial page is beating its breasts.
Of course in the case of Cuomo it's easy to accuse him of the high sin of breaking a campaign promise. He did no doubt make a fairly categorical pledge not to raise taxes, a la George Herbert Walker Bush's "Read my lips no new taxes."
He had run on a platform of a 2% cap on property taxes and that he would allow the "millionaires tax hike' of 2010 expire. The Journal of course quotes him declaring in October:
"You are kidding yourself if you think you can be one of the highest taxed states in the nation, have a reputation for being antibusiness and have a rosy economic future."
I guess I'm a little more sanguine about it because I don't see breaking a campaign promise as necessarily the unpardonable sin it is often held to be. I prefer to see Cuomo as changing his views with his increased awareness of events on the ground.
He had honestly-but mistakenly-believed that this categorical rejection of tax hikes of any form would lead to increased revenues. Instead it led to an increased budget deficit of $3.5 billion next year. This tax hike on the top .01% will raise more than half of the shortfall with $1.9 billion added to the budget.
"If I were to close to the entire gap by budget cuts, it would decimate essential services, doing real harm to the state's economy and strangling local governments all across this state."
To me if you make a misguided promise is it better to dogmatically hold to it when you realize it was misguided as W. Bush did with his budget busting tax cuts-that he claimed would not do so-or to admit you made an honset mistake and adjust your viewpoint? FDR came into office in 1933 promising the balance the budget. When he saw that was the wrong policy he put it aside. History certainly judges him differently than W style dogmatism.
Much as the WSJ may fulminate, it is unlikely to hurt Cuomo politically-for me it actually increases my estimation of him His popularity is in the high 60s, his approval of the handling of Hurricane Irene is in the high 80s and a more progressive tax code is what Occupy Wall Street is all about.
Then of course there is the fact that Republican State Senate leader, Dean, Skelos, went along with Cuomo. He also got a green light when he floated the idea in thebusiness world. The Real Estate Board, for example decided not to fight him on it. The WSJ peevishly acknowledges this reality:
"Equally worthy of scorn are the Republicans who run the state Senate who buckled under union pressure because they don't have many millionaires in their rural districts. New York's GOP is essentially worthless. (My note: they are probably thinking here also of the Republican Senate helping pass gay marriage last year too). Blame, too, goes to the Partnership for New York City, the big business grandees who support a tax increase and for whom higher taxes are a rounding error. They're sticking it to small business owners with narrow profit margins"
Here is a typical conservative urban legend-the small business owners with narrow profit margins who will be decimated by a tax hike that will only effect income earners of more than $2 million. This is part of the WSJ's ongoing new genre of economic fiction-we have science fiction and economic fiction(to the extent that economics are a fiction) is a subgenre of WSJ and it's friends at Cato, AEI, et al.
This is the same urban legend that claims that the inheritance tax hurts small business owners particularly the canard of "family farms."
Most small business owners with tight profit margins don't earn over $2 million a year. If your income is $2 million you aren't suffering from tight margins. Bear in mind that in nominal terms this over $2 million group is actually seeing its tax rate decrease from 8.97 to 8.82. It is called a hike as prior to the millionaire tax in 2010 this bracket's tax rate was 6.85. So what is happening is that the millionaire tax is being maintained for a few more years-it is still temporary. The tax hike is being rescinded for those who make between $500,000 to $2 million. Can anyone claim that to pay 8.82% rather than 6.85% on any income over $2 million-keep in mind these are marginal brackets-will force someone out of business? If you make $2 million you get taxed at 6.85, only income over that level is taxed.
On the other hand if you make $3 million-in which case lucky you-only the $1 million above that rate would be taxes at the extra 1.97 percent. Profit margins affect the production process anyway, if you have $3 million in income-as opposed to revenue-you have a very healthy profit margin for yourself-these are individual rates anyway not business rates, so the tight profit margin argument is even more of a canard.
Let's imagine someone who has $3 million in personal income. The first $2 million are taxed at the 6.85% level. The remaining $1 million is taxed at 8.82%. That is a 1.97% "tax increase" though it is a .15% cut from last year's temporary rate-Norquist last week claimed that for the Republicans to allow the payroll tax cut expire is not a tax hike as it was temporary. So the extra tax burden is $19,700. No one is going out of business.
While Cuomo can be represented as breaking a campaign promise, this can't be said of Jerry Brown. I is actually one of a few governors who have actually been elected to raise taxes. He is putting a tax hike on the rich on next year's ballot. The ballot measure calls for a 1% hike on those who make between $250,000 (for a total of 10.3%), 1.5% for those up to $500,000 (10.8%) and 2% for those who make above $500,000(11.3%) with all taxes being retroactive to Jan. 1, 2012.
In Calfiornia as WSJ notes approvingly all tax cuts require a two-thirds vote to raise taxes. What Califonria really could use is a ballot measure to overturn that miserable law. True the voters did pass it previously, but like Cuomo they likely now realize they were mistaken.
"Now he's resorting to the ballot box, and to what will no doubt be a year-long campaign to scare voters into believing that if they don't raise taxes their children will go uneducated, their roads will decay, and the middle class will go without helath care. Hollywood and the unions will be his fianciers."
You mean those roads, schools and health care won't be cut? As the conservatives rule out tax cuts and give stern lectures about failing to balance budgets how else can the budget be balanced but indeed by cuts in roads, schools, health care and other public services the public counts on?
This genre of economic fiction is really taking off. They warn that progressive tax code is more harmful during recessions as multimillionare incomes soar during good times but crash during recessions. Supposedly this makes an economy hostage to boom and bust. You mean like the 50s and 60s, the age of progressive taxation? There was a lot more boom than bust back then. Actually right now the rich in NY are seeing record profits over on Wall St.
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