No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

Tax the rich? We’ve already tried that – part 2

by @ 19:22 on March 29, 2011. Filed under Politics, Taxes.

(H/T – Lance Burri, just because I don’t think a million hits is enough for him, or is it the fact that he used the eggs-in-a-basket analogy)

If I had paid attention on Saturday, I probably would have done this as the Weekend Hot Read. Robert Frank of The Wall Street Journal used the collapse of the rich and the resulting collapse of various states’ tax revenues as the topic of the WSJ’s Saturday Essay. I’ll take a larger chunk than Lance did to get you to read the entire thing:

The story of (Brad) Williams, the former chief economist and forecaster for the California Legislative Analyst’s Office, shows just how vulnerable states have become to the income shocks among the rich, and why reform has proven difficult.

In the mid-1990s, shortly after taking the job, Mr. Williams discovered he had a problem. Part of his job was to help state politicians plan their budgets and tax projections….

Historically, California’s tax revenues tracked the broader state economy. Yet in the mid-1990s, Mr. Williams noticed that they had started to diverge. Employment was barely growing while income-tax revenue was soaring.

“It was like we suddenly had two different economies,” Mr. Williams said. “There was the California economy and then there were personal income taxes.”

In all his years of forecasting, he had rarely encountered such a puzzle. He did some economic sleuthing and discovered that most of the growth was coming from a small group of high earners. The average incomes of the top 20% of Californian earners (households making $95,000 in 1998) jumped by an inflation-adjusted 75% between 1980 and 1998, while incomes for the rest of the state grew by less than 3% over the same period. Capital-gains realizations—largely stock sales—quadrupled between 1994 and 1999, to nearly $80 billion.

Mr. Williams reported his findings in early 2000, in a report called “California’s Changing Income Distribution,” which was widely circulated in the state capital. He wrote that state tax collections would be “subject to more volatility than in the past.”

The essay goes on to note how the states that became most-addicted to the outsized increased revenue from the high-income earners, have become the worst economic basket cases as the POR Economy (™ Tom Blumer) decimated those same people.

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