Winds of Change.NET: I'm A Liberal, Not An Idiot

I'm A Liberal, Not An Idiot

by Armed Liberal at January 23, 2004 3:14 PM

My favorite whipping journalist - no, sorry, I shouldn't say that, that's really an insult to journalists - Steve '300K' Lopez, of the L.A. Times, is all over a plan by a couple of state college professors to get rid of the deficit by having a couple of rich people write checks and make it go away.

[Update: Patterico has exactly the same post. We've never been seen together, you know...]

While many of my friends have some of the same fantasies about their credit card bills, and I recall Richard Condon had a great line about it in one of the Prizzi books - the one where he's remade as a Park Avenue WASP and run for President (now there's a candidate I could back!! Which one is the Mafia hit man candidate, that's what I want to know...), it's somewhat more problematic where I live, in reality.

300K says in his January 11 column:

California, after all, is in the middle of the pack in state and local taxation, and we've got personal wealth like nobody's business.
The state has 95 of the country's 400 billionaires, and their net worth is $102.9 billion, according to figures sent to me by Bill Wong, chief of staff to Assemblywoman Judy Chu. It'd be chump change for them to loan us the $15 billion, interest-free.

In 2000, according to Wong's numbers, 784 Californians with incomes above $200,000 paid no income tax at all. What's the point of having an action hero as governor if he isn't going to track those people down, put them in headlocks and grab their wallets?
Two professors ... John Bachar of Cal State Long Beach and Paul O'Lague of UCLA ... sent me a proposal that would raise enough money in two years to wipe out all our bills, and it wouldn't cost 97.3% of Californians a nickel.

And damn, does he love that idea. He goes on to extol it more in his Jan 21 column:

...let me give you the background.
"When we heard Arnold Schwarzenegger say the only way to do this was with a $15-billion bond measure, we wanted to come up with an alternative that wouldn't substantially change the lifestyle of any Californian," says Paul O'Lague, who teaches molecular biology at UCLA.

O'Lague and his pal John Bachar, who teaches statistics and probability at Cal State Long Beach, have been studying income taxes and wealth distribution for years, and hosting salons to hash out their ideas.

They came up with a proposal that puts a surcharge on California residents with an income above $200,000, including a joint filing in which husband and wife make that much combined.

The surcharge would start at 0.5% for light heavyweights making $200,000, and climb to 7% for bombers hauling in $5 million a year or more. All told, this $200k-plus group accounts for just 3.1% of all tax returns, but has 35.9% of total personal income in the state.

The surcharge would generate a fat $13 billion a year, because California has more millionaires per capita than any state. (And Golden State billionaires, who account for more than one-fifth of the nation's billionaires, have a net worth of $102.9 billion.)

"How much money can you spend on yourself?" asked Bachar. He echoed his colleague's point that for the state's aristocracy, the hardship of a surcharge could mean having to settle for a $9.5-million mansion instead of a $10-million estate.

Now let me point out two teeny problems with this notion. The first one is theoretical, but has been pretty well borne out in recent tax policy history. I'm willing to spend all the money I can raise by taxing you, and maybe a little more. When it doesn't cost me anything, why not? The notion that the variable tax burden can be shifted to someone else - whether higher income taxpayers, or those who make their living from wages and not dividends - makes raising those taxes and spending pretty damn attractive.

To put it terms that 300K might understand, it's like giving your kid a credit card you make the payments on. it might work out, but in most cases, it will end badly.

So the politics of it get messy.

And then there's the little problem that it doesn't work.

Somehow, the Sacramento Bee got Dan Weintraub, and we got stuck with 300K. It's just not fair. Here's Weintraub's Sunday column on the subject:

Why should we care?
Because California's skewed income distribution, combined with progressive tax rates, means that the people at the very top of the income heap pay a very high percentage of the personal income tax collected in this state.

Their extraordinary, onetime income surge at the end of the last century provided most of the new tax revenue that legislators and former Gov. Gray Davis used to raise teacher salaries, increase welfare benefits and expand eligibility to state-provided health care. But the decline that followed also accounted for most of the revenue drop that contributed to the state's fiscal crisis. And as of the most recent tax year, they hadn't hit bottom yet.

The million-dollar earners peaked in 2000, when 44,000 of them -- about enough to fill your average baseball stadium -- reported incomes totaling $172 billion and paid more than $15 billion in taxes. The tax take from that relative handful of returns accounted for more than one-third of all income tax paid in the state.

The next year, the number of returns reporting incomes that high slumped to 29,000. Their combined income also declined, by nearly half, to $95 billion. And here was the killer: Their tax liability dropped from $15 billion to just under $8 billion.

The money lost to the treasury that year would have been enough to pay for the state's entire commitment to higher education, or most of the cost of the Medi-Cal system that provides health care to six million of California's poorest residents.

The volatility in income and behavior mean that it's damn hard for the state to rely on stable revenues from the ever-shrinking group of people deemed rich enough to be taxed. When I talk about behavior, I mean two things: many of them move away (cf Jim Clark), and most of them (even me) can 'engineer' their income around tax policy to minimize taxes.

Now, remember that I'm the guy who explicitly supports redistribution. I have no ideological bias against the idea that the rich should pay proportionately more, even a lot more. But I have this funny quirk. I believe that whatever the tax policy is, it has to work. That's because I'm a part of the future Party of the Sensible, one that believes that policies should be judged on more than their good intentions.

I dinked around with an idea which I may try and get into the Hope Street competition if I can get some time to do research (or if I can find a volunteer to help out).

Sales taxes are anathema to progressives, because they are inherently regressive...lower-income household have to spend most of their income to survive, and so wind up paying a far higher percentage of their income in sales taxes. But they are stable, and more importantly, they are the means whereby those who earn in the cash economy contribute their share. Simply put, we ought to bump the state sales tax by a fairly significant amount, and rebate it back to lower- and middle-income taxpayers, possibly by covering some portion of their payroll taxes with it. Note that some burden will fall on lower- and middle- income taxpayers; that can't be avoided, although it can be meliorated. Further note that those who live in the cash economy - who include illegal immigrants - will be disproportionately affected. Good; they need to pay their share, too.

Here's a set of notions that might actually work:

Raise sales taxes statewide by .5%;
Arrange for the state government to pay 100% of the payroll taxes to the Federal Gov't equal to that on the first $24,000 of income of California workers, phasing down to 0% at $36,000 - paid for from the sales tax revenues.
Add a state payroll tax that starts at the income levels where the Federal taxes end;
Devise policies that reassess commercial property held in corporations or partnerships when 51% of the corp or partnership changes hands;

I need to do the math more exactly, but it seems that we'd pick up a few billion in more-stable state revenues that way.

And it wouldn't result in a policy that resulted in a very few high-income taxpayers being the sole revenue source for the state.

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